INVESTMENTS Kane BodieMarcus Fourth Edition

The Investment Environment Chapter 1 1-1

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 Investments & Financial Assets 1-2

Role of Financial Assets and Markets in the Economy Consumption Timing Allocation of Risk Separation of Ownership 1-3

Financial System Clients and Their Needs Household Sector - Primary Need: Invest Funds Business Sector - Primary Need: Raise Funds Government Sector - Primary Need: Raise Funds 1-4

How the Financial System Meets the Needs of Participants Financial Intermediation Investment Banking Financial Innovation & Derivatives Responding to Regulation & Taxes 1-5

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 Investments and Innovation 1-6

International and Global Markets Continue Developing Managing foreign exchange Diversification to improve performance Instruments and vehicles continue to develop Information and analysis improves Key Trends - Globalization 1-7

Securitization & Credit Enhancement Offers opportunities for investors and originators Changes in financial institutions and regulation Improvement in information capabilities Credit enhancement and its role Key Trends - Securitization 1-8

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 Key Trends - Financial Engineering 1-9

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 The Future 1-10