1: Introduction to Financial Markets

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1: Introduction to Financial Markets
Presentation transcript:

1: Introduction to Financial Markets I: Introduction 1: Introduction to Financial Markets

Dow Jones Industrial Average © Oltheten & Waspi 2012

Circular Flow Financial Markets Labor Markets Government Households Goods Markets Firms Factors of Production Capital Labor Consumption Production © Oltheten & Waspi 2012

Markets Exist to bring buyers and sellers together

Markets Labor markets . February 4 & 5, 2014

Markets Primary market Secondary market

Circular Flow © Oltheten & Waspi 2012

Financial Markets Facilitate optimal allocation of . through .

Returns Mechanism Normal Return . Abnormal Return

The beginning of a bubble Returns Mechanism Normal Return Abnormal Return © Oltheten & Waspi 2012

Efficient Markets Hypothesis Weak Form . Semistrong Form Strong Form

Technical Analysis Double Bottom (shaped like a W) [A] Breakout #1 [B] Breakout #2 [C] New Trend http://business.illinois.edu/finance_dev/Lesson21.asp

Fundamental Analysis Earnings Per Share (EPS) Price/Earnings Ratio (P/E)

availability of working capital Fundamental Analysis availability of working capital Current Ratio Quick Ratio liquidity

Fundamental Analysis Return on Assets (RoA) Return on Equity (RoE) Gross Profit Margin on Sales efficient use of assets profitability efficient use of factors of production

Practice Questions © Oltheten & Waspi 2012

Q&P 1-1: I use my computer and Internet link to chart the movement of all 30 Dow Jones Industrial stocks. I buy and sell according to my analysis of these price movements. If I can generate consistent abnormal returns in this manner then this is a failure of Charles is a member of the Board of Directors of the Royal Bank. If he can generate consistent abnormal returns in trading Royal Bank shares then this is a failure of Varya checks out all the Value Line publications and buys everything that Value Line recommends. If she can generate consistent abnormal returns then this is a failure of I watch Wall Street Week every week. Then when it's over I throw a dart at the Wall Street Journal. I buy whatever the dart hits. If I can generate consistent abnormal returns in this manner then this is a failure of John Q. Investor analyses the quarterly earnings statements of some fifty obscure small-cap stocks. He then buys according to the earnings pattern disclosed. If he can generate consistent abnormal returns in this manner then this is a failure of

1: Financial Markets in the Economy

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