How to read fin an cial papers

1. How to read financial papers Basic financial terms, instruments and markets to know in order to understand news Vallyon Andrea 2010

2. How to read financial papers How to get informationfor the best investments? Vallyon Andrea 2010

3. Would you have invested? Vallyon Andrea 2010

4. December 1977: Arrested for bad driving Vallyon Andrea 2010

5. The entire Microsoft staff.Albuquerque, 1978 Vallyon Andrea 2010

6. Learning goals DefineFinance and the Financial System Understandtherelationshipbetweenfinancialinstitutions and markets Describetherole of money and capital flow in thefinancialsystem Definethemoney and itsfunctions Vallyon Andrea 2010

7. Materialstolearnfrom • Stephen Valdez: An Introductionto Global Financial Markets,Macmillan Press Ltd.1997 – chapter 1 • György Székely: The Essence of Money and Banking A Handbookfor Financial Managers. KJK-Kerszöv Kft. 2002. CH 1 • Lawrence J. Gitman: Principles of Managerial Finance, Addison - Wesley 10th Edition – seesharepoint: CH1:21-28old. • Sharepoint: Keown CH2 Financial Markets and Interest rates • Lectureppt. Vallyon Andrea 2010

8. Indicativeaim • Link theory with the ‘real’ world. Vallyon Andrea 2010

9. "In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time - none, zero."-- Charlie Munger Vallyon Andrea 2010

10. Money = Happiness? Vallyon Andrea 2010

11. Power of Money and Finance • "We witnessed the collapse of the financial system,' said Mr. Soros. "There's no sign we are anywhere near the bottom." Vallyon Andrea 2010

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14. Investment decision • „All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies„ Warren Buffett Vallyon Andrea 2010

15. Money evolution • I. Direct interchange of commodities (barter trade) • II. The general equivalents (salt, slaves etc.) • Served as a basis of comparison Vallyon Andrea 2010

16. Criteria of money • Physical essentials: • Cheap to produce • Homogeneously equal • Highly divisible • Convenient to carry • Universally acceptable • Stability in value Vallyon Andrea 2010

17. III. Functions of money • Measure of value (értékmérő) • Means of turnover (forgalmieszköz) • Medium of payment, medium of exchange (fizetésieszköz) –standard of deferred payment (halasztottfizetésieszköz) • Store of wealth (kincsképző) • World money – if accepted internationally Vallyon Andrea 2010

18. When did money first appear? • Allequivalentsaremoney • Karl Marx – onlygold • Today? • –credit moneysystem Vallyon Andrea 2010

19. Think About That!: Vallyon Andrea 2010

20. Era of metals • Monometallism • Bimetallism • Greshams axiom. The good money was crowded out by the worse Vallyon Andrea 2010

21. Money substitutes Vallyon Andrea 2010

22. Money substitutes 2 • Acceptability • Discountingpapers • Commercialpapers, trade bills (kereskedelmi váltó) • Today –e-money Vallyon Andrea 2010

23. Pyramidshapeanalysis • Forlongterm • Fundementalanalysis • Economic variables and the exchange rate • Q? Vallyon Andrea 2010

24. Participants • bearish and bullish traders and speculators Vallyon Andrea 2010

25. A VERY Bad Bear! Vallyon Andrea 2010

26. Market terminologies • Secondary and primary • Money and bond market, domestic and international markets • Wholesale and retail market • Open and closed ( open offer for sale and private placing • Claim for the interest (Bearer and registered securities) Vallyon Andrea 2010

27. Money market • Short term instruments • Pure discount securities • Contracts up to 1 year • Huge volume and vigorous competition • No physical place • Essentially for professionals ( banks, fin. institutionalinvestors,brokerage firms,companies) • Liquidity ( fine spreads based on interest rate of lending and borrowing) • Creditworthiness (risk and return) Vallyon Andrea 2010

28. Financial instruments • Money market instruments • Treasury bills (T-bill) • Local authority/ public utility bills • Certificate of deposit (CD) • Commercial paper (CP) • Bill of exchange • Bankers` acceptance (BA) • Federal agency securities (Fannie Mae) Vallyon Andrea 2010

29. Financial instruments • Other possibilities • Call money • Interbank market • Repurchase agreement /repo/ • - Time deposit Vallyon Andrea 2010

30. Call money • Call money • Term: very short period of time • Overnight(12p.m-12p.m. next day) • 3 or 7 days notice • Negotiable: no • Money is lent by one bank to another and may be called back anytime Vallyon Andrea 2010

31. Money market securities • T-bills • Domestic instruments issued by governments to raise short term finance balancing cashflow • Non-interest bearing and interest-bearing, sold at discount in auction • Negotiable • Generally 13,26,52 weeks • Certificate of deposit - CD • Usually issued by banks, is simple the evidence of time deposit • Negotiable not as time deposit • Sold at discount or pay coupon • Interest payed at maturity • 30 days to 3 month or could be longer Vallyon Andrea 2010

32. Money market securities 2 • Commercial paper- CP • Issued by large, safe and well-known companies bypassing banks to achieve lower borrowing rates (sometimes below the bank’sprime rate) • Very short term (max 270 days, most 60days or less) • Issued at discount • Unsecured security Vallyon Andrea 2010

33. Money market securities • Trade bill, bills of exchange, bankers’acceptance • Used by companies for trade purposes • The seller draws up a bill to the buyer to pay and asks to sign it • Could be sold at a discount to the bank • Bank’s signature is a guaranty ( eligible bills in UK the Bank of England is the guarantor) Vallyon Andrea 2010

34. Capital market • Instruments • Bonds • Government bonds • Local authority papers • Mortgage or other assets backed bonds • Corporate • Foreign • Junk • Shares • Preferred • Normal • Innovations • Convertibles • Variables • Investment notes Vallyon Andrea 2010

35. Thanksforyourattention! Vallyon Andrea 2010