The Finance Sector & Careers A Discussion

Pank Agrrawal, Ph.D. Astt. Prof. Finance The Finance Sector & CareersA Discussion The Financial Services Sector Career Opportunities Sub-groups within the sector Globalization Some search sites

Why study finance? $’s facilitate transactions, but money itself can be transacted, what is its price? Why go to work? Why invest? Invest in what - education, health, stocks, bonds? All? Now? Local stocks, national stocks or global stocks? How? Where? Why not bonds?

Why ask why?… How do I value stocks/bonds? Go to or Look at what? If T-bond rates go up – T-Bonds do what? And the US $? Points on a mortgage sound good. Really? Should I borrow to start my business? At what rate?

Simple Complexities of Finance: 3 Questions • If your initial investment declines by 50%, what percentage increase will bring you back to even? +50%, +49%, +51%, +100%, +200% • If the average annual returns for the past two years has been –50% and +50%, what is the return on your investment over those two years? –1%, 0%, –25%, -75%, +11%,+25% • If your investment has trebled in value, what is the associated percentage rise? (1% =1/100)

Finance sub-specializations • Financial Intermediaries: Banking • Corporate Finance: Managing the financing of corporations • Investment Management: Portfolio Management

PA: 1998 gdp=$8.5T 2005 gdp=$12.5T 1T=10^12=1000B=1000*1000M Finance as % of US GDP http://www.bea.gov/

Types of financial institutions • Commercial banks - Citibank • Investment banks – Goldman Sachs • Mutual savings banks • Credit unions – University CU • Pension funds – Corporate PFs • Life insurance companies – Met Life, NY Life • Mutual funds – Fidelity, Vanguard, Schwab • Hedge funds - Bridgewater, DE Shaw, Citadel

Hedge Funds $ 1.5 Trillion Sub-industry Historically the stock market value has been about 58% of GDP. Lows were in the range of 37% in the early 1950s, and 25% at the bottom of the Great Depression. Today the rate is around 100% ($13 Trillion) From: Wikipedia.com Citadel, Campbell

Finance Jobs

Financial Management Issues of the New Millennium • The effect of changing technology: lower costs, efficient, barriers to entry lowered • The globalization of investing – cointegration – EWA, EWT, IFN, EFA, SPY

EWO, EWT, IFN, EFA, SPY, EZA, GE

Relevance of Finance and Globalization: • If you are a Doctor / Engineer– how does FM affect you? • For self decisions – day to day • Good business organization • If you are a Nebraska Homebuilder– how does Globalization affect you? • Local economy – wheat demand - global • Interest rates –global- housing demand

USD vs EUR, INR http://finance.yahoo.com/currency

Company % of Revenue from overseas % of Net Income from overseas Coca-Cola 60.8 35.9 Exxon Mobil 69.4 60.2 General Electric 32.6 25.2 General Motors 26.1 60.6 IBM 57.9 48.4 JP Morgan Chase & Co. 35.5 51.7 McDonald’s 63.1 61.7 Merck 18.3 58.1 3M 52.9 47.0 Sears, Roebuck 10.5 7.8 Percentage of Revenue and Net Income from Overseas Operations for 10 Well-Known Corporations

Responsibility of the Finance Staff • Maximize stock value by: • Forecasting and planning • Investment and financing decisions • Coordination and control • Transactions in the financial markets • Managing risk

Decision making in Finance • Decisions made by financial managers: • Investment decisions [which project,where] • Financing decisions (the relative use of debt vs equity financing) • Policy decisions [retained earnings use, dividends, taxation] • The external environment [no control] • ceteris paribus – not a bus in paris

The Finance Sector & Careers A Discussion