Week 1: Introduction

Question 1

What is finance?

Answer 1

It is a branch derived from economics. Looks at how to manage money efficiently.

Question 2

What are the different categories in finance?

Answer 2

(1) Public finance
(2) Personal Finance
(3) Corporate Finance

Question 3

What are the fundamental challanges of Finance?

Answer 3

1) VALUATION- How finances are values?

2) MANAGEMENT- What/when shall I buy/sell.

• Time and Risk

Question 4

How to overcome challenges related to risk and time?

Answer 4

• Use historical data
• Use mathematic (Stats and probability)

Question 5

What is risk?

Answer 5

Refers to the uncertainty of the future outcomes of an investment

Question 6

What characterises the stock return?

Answer 6

• Volatility
• Predictability

Question 7

What are the properties of an ‘efficient market’ ?

Answer 7

• Random and unpredictable
• Prices should react quickly and correctly to news.
• Investors cannot earn abnormal returns.

Question 8

Stocks Vs Bonds:

Answer 8

Stocks: returns through dividends and no guaranteed return. Voting rights in the company

Bonds: Return through interest and guaranteed return. No voting rights.

Question 9

What are examples of derivatives?

Answer 9

• Forward and futures
• Options
• Swaps

Question 10

What is a private equity?

Answer 10

Ownership or interest in companies (either startup or established) that are not listed on a public exchange

Question 11

What is a venture capital?

Answer 11

a specialised form of private equity, typically involves investing in or providing financing to startup or early-state companies with high growth potential

Question 12

Name different types of investments:

Answer 12

1) Real estate
2) Commodities- like grains, metals, crude oil.
3) Infrastructure- like roads, schools, etc
4) Art
5) Fine wine
ETC…

Question 13

What is the goal of financial managers?

Answer 13

Maximise shareholder wealth