Day 3 in the am # 1 / 34 International Corporate Finance International Corporate Finance (ICF)

Day 3 in the pm # 2 / 34 International Corporate Finance Agenda  Friday – ( Sessions am: 8:30-12:00, am: 1:30-5:00 )  am: Structures, Statements, Value, Analysis, Currency  pm: Time & Currency Discounting/Trading of Money  Saturday – ( Sessions am: 8:30-12:00, am: 1:30-5:00 )  am: Workshop on Evaluating Financials. Discussion of the RMB  pm: Internal Operations: Cash Management & Project Evaluation  Sunday – ( Sessions am: 8:30-12:00, am: 1:30-5:00 )  am: Workshop on Financial Projections and Raising Capital  pm: External Operations: Markets’ instruments and practices  Monday – ( Sessions am: 8:30-12:00, am: 1:30-5:00 )  am: Understanding the "NEW ECONOMY"  pm: Reviewing important points. Final Exam. On the Internet at:

Day 3 in the pm # 3 / 34 International Corporate Finance US Securities Market  A securities market is a place where you buy or sell financial assets such as bonds, stocks, options, or futures.  Examples of securities exchanges:  New York Stock Exchange (NYSE)  American Stock Exchange (AMEX)  Chicago Board of Trade (CBT)  Over the Counter (OTC) market  National Association of Securities Dealers (NASDAQ)

Day 3 in the pm # 4 / 34 International Corporate Finance Securities Vocabulary  Money Markets or “cash”  Fixed Income Capital Markets (Bond Markets)  Equity Capital Markets (Stock Markets)  Stock Indexes  Derivative Securities Markets  International markets and  Primary market (IPOs)  Secondary market (subsequent offerings)

Day 3 in the pm # 5 / 34 International Corporate Finance Money Market Instruments MMIs are: short term, liquid, low risk, popular

Day 3 in the pm # 6 / 34 International Corporate Finance US Treasury Bills  Short-term government debt securities  Sold through auction by the U.S. Treasury  Maturity of one year or less  Discount bonds (no coupons)  Minimum denomination is $10,000  Tax-exempt at the state and local level

Day 3 in the pm # 7 / 34 International Corporate Finance Bonds  Based on who the issuer is.  Treasury Notes and Bonds  Both pay semiannual coupons  Notes are 1-10 years maturity  Bonds are years maturity  Federal Agency Debt  Mortgage and student loan agencies  Municipal Bonds  Tax-exempt at the federal, state, and local level  Corporate Bonds  Default risk; credit rating  Mortgage-Backed Securities

Day 3 in the pm # 8 / 34 International Corporate Finance Distribution of US Bondholders

Day 3 in the pm # 9 / 34 International Corporate Finance Mutual Funds  What is a mutual fund?  An investment company that pools the funds of individual investors and buys securities or other assets on their behalf.  What are the benefits?  Diversification of investments  Lower transaction costs  Book-keeping and reports  Professional Management

Day 3 in the pm # 10 / 34 International Corporate Finance Stocks  Common Stocks  Shareholder or Owner of the firm  Residual Claimant  Limited Liability  Preferred Stocks  Fixed Dividends  Cumulative Dividend Provisions  No voting power  Liquidation Preference

Day 3 in the pm # 11 / 34 International Corporate Finance NYSE Listing Requirements

Day 3 in the pm # 12 / 34 International Corporate Finance NASDAQ Listing Requirements

Day 3 in the pm # 13 / 34 International Corporate Finance Spread BID ASK The spread, or difference between a stock’s BID and ASK price, represents the capital risk a market participant undertakes when buying or selling a stock. Spread =.125

Day 3 in the pm # 14 / 34 International Corporate Finance Transaction Orders  Market orders are simply buy and sell orders that are to be executed immediately at current market prices.  Limit orders specify the limits on the prices at which they are willing to buy or sell a stock.  Stop loss orders are similar to limit orders in that they will not be executed unless the stock hits a price limit.

Day 3 in the pm # 15 / 34 International Corporate Finance Derivatives  A derivative is a financial asset that is derived from an existing traded asset.  A futures contract is an agreement made today to buy or sell an asset at a future time period at a price specified today.  An option contract is an agreement that gives the owner the right, but not the obligation, to buy or sell an asset at a specified price for a set period of time.

Day 3 in the pm # 16 / 34 International Corporate Finance Short Sales  Short sales allow investors to profit from a decline in a security’s price by selling securities they do not own.  How? By borrowing from another investor.  SEC Rules:  Short sale must be identified to the exchange  “Marked to market” each day  Executed only on an uptick

Day 3 in the pm # 17 / 34 International Corporate Finance Liquidity  Liquidity is a broad concept that generally denotes the ability to trade large quantities quickly, at low cost, and without moving the price.  Liquidity becomes an issue when the number of shares held is large, trading is halted (for an announcement or irregularity), or the float is very small.

Day 3 in the pm # 18 / 34 International Corporate Finance Global Markets

Day 3 in the pm # 19 / 34 International Corporate Finance Stock Indexes  Nikkei 225 (Japan)  FTSE (Financial Times of London)  100 largest stocks on the London Stock Exchange  DAX (Germany)  CAC 40 (France)  Hang Seng Index (HK)  Dow Jones Industrial (US)  Dow Jones Transportation (US)  Standard & Poor 500 (US)  Wilshire 5000 (US)

Day 3 in the pm # 20 / 34 International Corporate Finance Emerging Markets

Day 3 in the pm # 21 / 34 International Corporate Finance Depository Receipts  American Depository Receipts (ADRs) A security issued in USA to represent shares of a foreign stock  International Depository Receipt (IDR) A negotiable, bank-issued certificate representing ownership of stock securities by an investor outside the country of origin. An IDR is the non-U.S. equivalent of an ADR.  Global Depository Receipt (GDR) A bank issued certificate in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the bank branches. Similar to and IDR and an ADR.

Day 3 in the pm # 22 / 34 International Corporate Finance ADR Purchase Mechanics

Day 3 in the pm # 23 / 34 International Corporate Finance Dow – Nikkei

Day 3 in the pm # 24 / 34 International Corporate Finance Dow – Nikkei

Day 3 in the pm # 25 / 34 International Corporate Finance P/E Ratio vs Δ E/Share

Day 3 in the pm # 26 / 34 International Corporate Finance Nikkei 90s vs Dow 30s

Day 3 in the pm # 27 / 34 International Corporate Finance Yen vs Dollar for

Day 3 in the pm # 28 / 34 International Corporate Finance Stock Market Discussion I  What makes a price?  Perception of future price  usually based on future earnings/share (amount, predictability)  biased by market conditions (bull/bear, liquidity, group, …)  reputation and position of the individual company  absolute price ( $100) and liquidity  What makes a return?  Selling at a profit (costs, taxes, conversion, …)  Timing (it is no help to say this is the most important factor)  Honesty (it is a crime to sell based on inside information)

Day 3 in the pm # 29 / 34 International Corporate Finance Long Term Returns by Class

Day 3 in the pm # 30 / 34 International Corporate Finance P/E Ratio

Day 3 in the pm # 31 / 34 International Corporate Finance P/E Ratio Distribution

Day 3 in the pm # 32 / 34 International Corporate Finance P/E Ratio vs Δ E/Share

Day 3 in the pm # 33 / 34 International Corporate Finance Stock Market Discussion II  What makes money (for you, personally)?  Invest in the following companies:  Emerging, important industry (internet, e-commerce, …)  After the industry consolidation to majors!  Hedge if early, otherwise just go with the leader!  Remain for at least 10 years; ask is 100x valuation possible?  If you had IBM, Xerox, Walmart, … >24% annually  10 years= 10x, 20 years= 100x, Walmart was 1,000x!  Even if losing money (e.g., AOL), but look at CASH!  Two years ago I picked SOHU it is still a hold.  SOHU at $ in 2010 is still 20% compounded annually  This obvious formula is a secret because only you make money (brokers don’t, funds don’t, and news doesn’t matter) !

Day 3 in the pm # 34 / 34 International Corporate Finance Concluding Remarks  Questions and Answers  Thank you, again. You can find a copy of this lecture (1,100 KB) on the Internet at:

Day 3 in the pm # 35 / 34 International Corporate Finance Kondratieff Long Wave

Day 3 in the pm # 36 / 34 International Corporate Finance Kondratieff Cycle