Bodie

Kane

Marcus

INVESTMENTS
Fourth Edition

Bodie

Kane

Marcus

Fourth Edition

INVESTMENTS
Irwin/McGraw-Hill
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INVESTMENTS
Fourth Edition

Chapter 1

The Investment Environment

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Investments & Financial Assets

Essential nature of investment - Reduced current consumption - Planned later consumption Real Assets - Assets used to produce goods and

services

Financial Assets - Claims on real assets

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Role of Financial Assets and Markets in the Economy

Consumption Timing Allocation of Risk Separation of Ownership

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Financial System Clients and Their Needs

Household Sector - Primary Need: Invest Funds Business Sector - Primary Need: Raise Funds Government Sector - Primary Need: Raise Funds

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How the Financial System Meets the Needs of Participants

Financial Intermediation Investment Banking Financial Innovation & Derivatives Responding to Regulation & Taxes

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Investments and Innovation

Technology and Delivery of Service Computer advancements More complete and timely information Globalization Domestic firms compete in global markets Performance in regions depends on other regions Causes additional elements of risk

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Key Trends - Globalization

International and Global Markets Continue Developing Managing foreign exchange Diversification to improve performance Instruments and vehicles continue to develop Information and analysis improves
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Key Trends - Securitization

Securitization & Credit Enhancement Offers opportunities for investors and originators Changes in financial institutions and regulation Improvement in information capabilities Credit enhancement and its role
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Key Trends Financial Engineering

Repackaging Services of Financial Intermediaries Bundling and unbundling of cash flows Slicing and dicing of cash flows Examples: strips, CMOs, dual purpose funds, principal/interest splits

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The Future
Globalization continues and offers more opportunities Securitization continues to develop Continued development of derivatives and exotics Strong fundamental foundation is critical Integration of investments & corporate finance

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