1. Financial Markets and Business

2. Production and Time Production takes time Investment takes time
Capital Increases Labor Productivity
Financial Intermediaries
Interest Rate-annual interest expressed as the amount borrowed

3. Consumption and time
Paying More to consume now

4. The Market for Loans Demand for Loans Supply of Loans
Market Interest rate
Equilibrium interest rate

5. Banks as Intermediaries
Financial intermediaries- accumulate funds from savers and lend funds to borrowers
Credit- ability to borrow now, based on a promise to repay in the future
Serving savers and borrowers

6. Banks as Intermediaries
Banks specialize in loans
Reducing risk through Diversification- lend to several borrowers
Line of Credit- draw on credit without having to fill out loan application each time

7. Why Interest rates differ
Prime rate- lowest interest rate charge to most trustworthy borrowers
Risk
Collateral- asset sold to pay loan default
Duration of Loan- longer more interest
Cost of Administration- less interest on larger loans
Tax Treatment

8. Corporate Finance Corporate Stock Corporate borrowing
IPO (initial public offering)
Dividends- profits paid to stock holders
Corporate borrowing
Bond- corporations promise to pay back the holder a fixed sum of money at a given date
Securities Exchange
Stocks and bonds are securities- owners free to sell them

9. Profit and Growth Corporate profits and growth
Franchises- right o sell product in a given region (McDonalds)

10. Corporate Mergers Mergers
Horizontal mergers- firms merge who make same product (Exon, BP)
Vertical mergers- merge with the resource producer or one who you sell resource to (Steel, car maker)
Conglomerate merger- combination of firms in different industries( plastics, electronics)
Four large merger waves

11. Multinational Corporations
Corporation that operates globally
Running Multinationals
Headquarters
Development
production
Problems with multinationals
Adapting to cultures
Coordination
Different regulations, tax laws, currency
Take jobs
Exploit workers