Financial Markets & Investment: Week 1 - The Investment Environment

The Investment Environment

Today's Lecture Aims

This lecture aims to ensure all students are conversant in the vocabulary of finance, given the varied backgrounds of students on the program, ranging from finance majors with significant work experience to those with general business administration backgrounds.

Learning Outcomes

Upon completion of this lecture, students should be able to:

  1. Understand the purpose of the financial system at large.

  2. Identify similarities and differences between the primary asset classes.

  3. Explain the central ways in which firms raise equity capital.

Background Reading Recommendation: Chapters 1 to 2 of the Bodie, Kane and Marcus textbook.

The Financial System

Purpose of the Financial System

The financial system serves as the engine room of the real economy. Its primary roles are to channel funds from savers to borrowers and to ensure the efficient dissemination of capital.

The Main Players

  1. Businesses: These are typically net borrowers. They engage in productive investment to drive economic growth.

  2. Households: These are generally net savers, willing to defer consumption for future needs like a