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

2. 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: http://cha4mot.com/ICF0411http://cha4mot.com/ICF0411

3. 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)

4. 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)

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

6. 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

7. 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 10-30 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

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

9. 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

10. 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

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

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

13. Day 3 in the pm # 13 / 34 International Corporate Finance Spread BID ASK 30.25 30.375 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

14. 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.

15. 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.

16. 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

17. 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.

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

19. 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)

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

21. 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.

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

23. Day 3 in the pm # 23 / 34 International Corporate Finance Dow – Nikkei 1976-1989

24. Day 3 in the pm # 24 / 34 International Corporate Finance Dow – Nikkei 1989-2002

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

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

27. Day 3 in the pm # 27 / 34 International Corporate Finance Yen vs Dollar for 1942-2001

28. 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)

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

30. Day 3 in the pm # 30 / 34 International Corporate Finance P/E Ratio 1870-2002

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

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

33. 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 2 - 4 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 (@$1.80); it is still a hold.  SOHU at $100.00 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) !

34. 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: http://cha4mot.com/ICF0411

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

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