Staszkiewicz Finance

A Quantitative Introduction
1. Auflage 2014
ISBN: 978-0-12-801760-9
Verlag: Elsevier Science & Techn.
Format: EPUB
Kopierschutz: 6 - ePub Watermark

E-Book, Englisch, 194 Seiten

Many students want an introduction to finance. Those who are quantitatively-oriented learners can benefit in particular from an introduction that puts more emphasis on mathematics and graphical presentations than on verbal descriptions. By illustrating core finance facts and concepts through equations and graphical material, Finance: A Quantitative Introduction can help people studying business management, marketing, accounting, and other subjects. By using few lengthy verbal explanations and many illustrations, it can teach readers quickly and efficiently. - Chapter-concluding questions (with answers) and case studies enhance its utility as a textbook and a reference - Mixture of theory and problem-solving contains enough mathematical tools to help readers assess facts and evaluate real data in practical tasks - Short, simple presentation is perfect for non-native English speakers

Piotr Staszkiewcz is a Polish economist interested in auditing and financial markets. He is a public auditor registered at KIBR (Polish Audit Association). He earned his Ph.D. in macroeconomics from Wroclaw Economic University in 2003. From 2003 to 2005 he served as a member of the Management Board of Low Silesia Chamber of Auditors. In 2009 he was appointed to the Polish Auditor Examination Commission by the Polish Ministry of Finance. He is also a fellow of the Polish Economic Association.

Autoren/Hrsg.

Staszkiewicz, Piotr

Staszkiewicz, Lucia

Leseproben

Chapter 2 Market Participants
Abstract
Financial intermediaries provide customers with financial instruments that cannot efficiently be obtained by making direct transactions on security markets. Keywords
intermediates stock exchange business model IPO order execution investment activities short selling 2.1. Financial intermediaries
Financial intermediaries provide customers with financial instruments that cannot efficiently be obtained by making direct transactions on security markets. Consider: An investment fund collects money from small investors and invests a lump sum into a security, thereby achieving a price discount due to the size of the order. This would not be achievable if a single investor were to invest directly in the same instruments. Intermediaries are institutions that require, usually, authorization to operate in regulated financial markets. They include the following: • Central banks • Banks • Investment banks • Broker-dealers • Mutual funds (USIT’s) • Insurance companies • Pension and retirement funds • Commodity dealers • Locals • Other institutional investors • Non-institutional intermediaries The previous list indicates typical organized (or legal-based) entities; however, there are number of structures based on contractual agreements such as: consortia, special purpose vehicles (used, e.g., for securitization), financial conglomerates, and joint venture schemes, which build up another layer for non-institutional intermediaries. Analysis of such a structure is beyond the scope of this book. 2.2. Business models
Typical business models for the financial intermediaries are presented in the following table: Name Idea of Activity Gain Earned on Typical Customer Basic Customer Benefit Deposit Bank Collects deposits at lower rates and extends the credits on higher rates. Usually there is a difference in the maturity of the credits and deposits The difference between the rates and mismatch of maturities Retail customer Professional knowledge not required, product is easy but expensive Investment Bank Provides financing in return for financial instruments Fees Corporate Lower cost of financing Insurance Company Accepts risk from individuals in return for a premium Premium Mixed Risk transfer Broker/Agent Usually represents client in front of many institutions. Works on behalf of client.
Brokers do act as intermediaries and do not keep inventory
Commission Mixed Selection costs Dealer/Principal Usually represents an institution in front of many clients. May buy assets on their own account and resell to clients. Dealers do keep an inventory (e.g., IPO securities, new cars)
Commission plus capital gain resulting from mismatch of time between acceptance and execution of order Mixed Product expertize Mutual fund Collects assets from clients and manages a lump sum fund Success fee
Management fee Mixed Acquisition of assets on gross sales (discounts available) Asset manager Manages a fund Success fee
Management fee Wealthy individuals
Mutual funds Risk management State collateral provider Provides collateral to business to stimulate the economy. An institutional policy tool Economic policy instrument Business Risk transfer Stock exchange Maximizes the potential turnover Transaction costs (charge) Only stock members (usually broker-dealers) Credibility of the transaction Settlement and clearing house Matches and settles the transaction. Protects the liquidity and execution of the transaction Transaction costs
(charge) Corporate Evidence of transaction. Ownership is certain Custodian (deposits) Provides the infrastructure for the market. Maintains the record of assets and safeguard assets Commission Corporate (rare retail) Safeguards assets, limits conflict of interest Information provider Collect information from issuer, stock exchange, government, statistical offices and provides it to the public Advertising fees
Database access fees
Tailored report fees Mixed Enhance information efficiency Government Finances the state deficit, reinvests the state surplus Management of cost of public debts or return from investments Corporate (rare retail) Benchmark for market,
Risk-free assets provider Central bank Impacts FX and interest rates via open market operation. Supervises micro requirements Stability of prices Corporate Benchmark
Last resort source of liquidity Local authorities Similar to government at local level As government but on local level Corporate Low risk assets provision
2.2.1. Transaction Facilitators (TF)
A TF is not an intermediary in its purest form, but is a service provider which stimulates, facilitates, or safeguards transactions on the market. Various transaction facilitators’ classes are given in the following table. Type Main Product Fee Charged to Example of a Worldwide Company Credit ratings Estimate the credit risk Issuer* Standard and Poor’s Auditor Ensures the fairness of financial data Ultimate owner KPMG Commercial lawyers Legal compliance Company White and Case Business consulting Strategy Company Boston Consulting Group * The business model of the credit ratings agencies has changed since the "Xerox" age. Prior to the selfcopying (invention of the Xerox machines), the business was dedicated to investors. The main product was an independent assessment of credit risk and the formulation of the purchase or disposal of assets by the investor. Once information technology advanced, the investor buying information could relatively easily and quickly share it with other investors, thus the value of information decreased substantially over time and reduced the potential demand for credit rating agencies. In return, the agencies attracted the issuer market by extending knowledge and consulting services to include how to upgrade their issue or structure rating. This case created a natural conflict of interests and is deemed to be one of the fundamental reasons for the 2007–08 financial crisis. 2.3. Initial public offering (IPO)
Example: Draw the process for the IPO and subsequent trading and withdrawal from market. Explain the role of intermediaries for industry while issuing and trading shares on the public market. Solution: Step Purpose Who Role Step 1 Identify an entity in need of financing Company itself
Professional advisors (auditors, tax, legal, strategic advisors), banks (investment), broker-dealers Identify the needs, draw solution, optimize cost of financing Step 2 Prepare the internal due diligence Company and advisor, usually investment bank, or broker-dealer Prepare the company for organization changes, implement reporting, internal system of control, prepare financial and quality information Step 3 Draw the prospectus Either investment bank or broker dealer as the leader of a consortium of advisors Auditor – audit at least 3 years’ of financial statements; legal – confirm the structure and legal status of entity; management consultants – prepare the qualitative aspects of issue, including risk assessment and prospect project management Step 4 Draw the issue strategy Underwriter (investment bank or broker-dealer) Either to enter the transaction without support (direct offer to market, if...