Beruflich Dokumente
Kultur Dokumente
Abdul Qadeer
B. Com (Hons.) Finance MS Finance PhD Finance (Continue)
Factor Market
Surplus
Borrow
Financial Market
Interest
Deals with Surplus and Deficit Funds
Interest
Product Market
Finance
After 1950, finance emerged as Science but in taking decision it is considered as Art Risk Profile Risk Appetite/tolerance Subjective Decision
Risk?
Uncertainty about future outcomes It is concern about downside volatility (unpredictable)
Probability of loss
Probability that actual return may be different from desired return/expected return
0.1 0 -0.1 0
Sources of Uncertainty
Business Risk Financial Risk Liquidity Risk Exchange Rate Risk Country or Political Risk
Business Risk
Uncertainty about future income flows. This risk is associated with unique circumstances or company specific . For example:
Oil & Gas
Exploration Distribution
Financial Risk
Chances of loss due to change in Interest Rate and Exchange Rate.
Interest Rate Risk: uncertainty about future IR. Exchange Rate Risk: Arises from the change in the exchange rate of one currency in relation to another.
Translation Risk Transaction Risk Economic risk
Country Risk
Risk associated to specific country. This risk differ country to country Political grounds
Liquidity Risk
In terms of:
Asset: Easily convert into cash Money Market: surplus cash exists in banks Capital Market: Presence of buyer and seller
Capital market is financial market where long term debt (when company or Government needs funding it (borrower) issues/sale debt securities in the form of Government Bonds, Corporate Bonds or notes
Security prices rapidly adjust the arrival of new information. Referred as informationaly efficient market Fama presented efficient market theory in the name of fair game model Three types of EMH Weak Form EMH: Semi strong form EMH Strong Form EMH
Corporate Decisions
Why Where Who When How