Introduction to Finance

Lesson 6
 Learning Objectives
• Show how finance is at the heart of business decisions
• Examine the three most common forms of business organization
 Finance
• Finance is the study of applying specific value to things we own, services
we use, and decisions we make.
 Subareas of Finance
1. Investment. The analysis and process of choosing securities and other
assets to purchase.
2. Financial management. The process for and the analysis of making
financial decisions in the business context.
3. Financial institutions and markets. The organizations that will facilitate
the flow of capital between investors and companies
 Financial Asset vs Real Asset
• Financial asset is a general term for securities
like stocks, bonds, and other assets that
represent ownership in a cash flow.

• Real asset is a general term for physical

property like gold, machinery, equipment and
real estate.
Finance in your personal life
Business Organization
 Agency Problem
• The difficulties that arise when a principal hires an agent and cannot fully
monitor the agent’s actions.