about finance

Hello

These two weeks, I read 3 different papers about innovations in finance.
One big question is that, why did these innovations take place in last decades?

The answer is:
The surge in inflation in the late seventies and the concurrent increase in the volatility of interest rates created the first wave of innovation in debt securities, with floating rate debt becoming a viable choice for most borrowers.

Debt / equality securities:

Debt positive points: Tax advantage.
Debt negative points: greater risk of bankruptcy for the firm (because the obligation to make fixed payment remains even when there is no earning for the firm).

Here I think it is useful to know about the optimal debt ratio:

Optimal debt ratio → where the net difference between the tax benefits and the expected bankruptcy cost is maximized:

Debt ratio = pv of tax benefits - pv of expected bankruptcy costs

Value of levered firm = value of unlevered firm + debt ratio

For being secure we can reduce the expected bankruptcy cost and increase both the optimal debt ration for a firm and the total firm value at special leverage by considering on borrowing money on a security where interest payments are not fixed but vary as earnings vary.

Now by looking at these figures we will understand it better:

This figure provides the time series of firm value for a hypothetical firm, where all of the changes in firm value are assumed to occur as a result of changes in macro economic variables:

In this figure we can see that where value of debt is fixed but value of firm is changeable by macroeconomic situations there is a risk for being bankruptcy when firm value is less than value of debt.
And as we know the situation outlined above is not really improbable for firms.

In this figure you can see that value of debt is changing by macroeconomic variables, so since debt value and firm value move together here the possibility of bankruptcy is reducing.

Now it is more clear for us that why did financial innovations take place in the last decades…

Some of the most important innovations which is used now a days are as follows:

.Commodity bond : where the coupon payments on the bond are linked to the price of a specific commodity, such as gold or oil.
.Catastrophe bond : where coupon payments and principal payments can be reduced or suspended in the event of a specified catastrophe (such as an earthquake or a flood).
….

Finally I found this chart from a site which is mentioned bellow in references:

have a nice time

References:
. Aswath Damodaran, Financial innovations and capital structure choices, stern school of buisiness, New York city.
. Franklin, innovations in finance

Hi everybody

since I try to keep the blog updated ,then I found it really interesting to think and study everyday about it. I study at least one or more papers every day and try to release the components of finance in those papers then choose the best form of papers and the way of thinking which is really appropriate for this blog.

Fortunately, these days I keep trying to find some good subjects for a book is written by one of my professors in University of Tehran.

For the next topic I want to search about innovations in finance.
Good topic I think ……………

WHAT IS CORPORATE FINANCE EXACTLY?

http://www.careers-in-finance.com/cf.htm
http://www.mckinseyquarterly.com/
http://pages.stern.nyu.edu/
free encyclopedia

finance defenition

These are the result of searching in the internet for 5 hours:

here is the answers for the question WHAT IS FINANCE?.
May be I can add some info to these texts later to make it more complete?

The field of finance refers to the concepts of time, money and risk and how they are interrelated. The term "finance" may thus incorporate any of the following:
The study of money and other assets;
The management and control of those assets;
Profiling and managing project risks;
The science of managing money;
The industry that delivers financial services
An entity whose income exceeds its expenditure can lend or invest the excess income. On the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing its expenses, or increasing its income. The lender can find a borrower, a financial intermediary such as a bank, or buy notes or bonds in the bond market. The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary pockets the difference.
A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays the interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity. Banks are thus compensators of money flows in space.

So maybe the course Finance and Banking is related to the role of bank as a aggregator and a compensator and all the related subjects.

Finance is one of the most important aspects of business management. Without proper financial planning a new enterprise is unlikely to be successful. Managing money (a liquid asset) is essential to ensure a secure future, both for the individual and an organization.
We can divide Finance into 3 parts:
Personal Finance
Corporate Finance
Public finance

Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance), as well as by a wide variety of organizations including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments, with consideration to their institutional setting.

In each of the parts above some questions about finance is answered;
for example:
Questions in personal finance revolve around
How much money will be needed by an individual (or by a family) at various points in the future?
Where will this money come from (e.g. savings or borrowing)?
How can people protect themselves against unforeseen events in their lives, and risk in financial markets?
How can family assets be best transferred across generations (bequests and inheritance)?
How do taxes (tax subsidies or penalties) affect personal financial decisions?
How does credit affect an individual's financial standing?
How can one plan for a secure financial future in an environment of economic instability?

Personal financial decisions may involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement.
Personal financial decisions may also involve paying for a loan.

Corporate finance:

Managerial or corporate finance is the task of providing the funds for a corporation's activities. For small business, this is referred to as SME finance. It generally involves balancing risk and profitability, while attempting to maximize an entity's wealth and the value of its stock.
Long term funds are provided by ownership equity and long-term credit, often in the form of bonds. The balance between these forms the company's capital structure. Short-term funding or working capital is mostly provided by banks extending a line of credit.
Another business decision concerning finance is investment, or fund management. An investment is an acquisition of an asset in the hope that it will maintain or increase its value. In investment management -- in choosing a portfolio -- one has to decide what, how much and when to invest. To do this, a company must:
? Identify relevant objectives and constraints: institution or individual goals, time horizon, risk aversion and tax considerations;
? Identify the appropriate strategy: active v. passive -- hedging strategy
? Measure the portfolio performance
Financial management is duplicate with the financial function of the Accounting profession. However, financial accounting is more concerned with the reporting of historical financial information, while the financial decision is directed toward the future of the firm.
Public finance:

Country, state, county, city or municipality finance is called public finance. It is concerned with
Identification of required expenditure of a public sector entity
Source(s) of that entity's revenue
The budgeting process
Debt issuance (municipal bonds) for public works projects

Reference :

http://knowledge.wharton.upenn.edu/category.cfm?cid=1
http://pages.stern.nyu.edu/~adamodar/
free encyclopedia

It would be better to know the second question in my mind to search for.

I think the important one is now:

WHAT IS CORPORATE FINANCE EXACTLY?

Oh I cannot believe that
I`m moving In a right way as I see.....
Up to 10 days I can know many things about finance and I will try to put my knowledge in this weblog for you

Good morning

I think one of the best ways for learning is, asking but not from the others but from yourself; So I have many questions and in this blog i`m going to answer them by searching in internet or in my university from my professors and the library(the place I love).

WHAT IS FINANCE AND WHAT WOULD WE LEARN ABOUT IT IN UNIVERSITY COURSES?
This is the first question in my mind about Finance.

It can be the first step for me to study Finance.

hello every body:

may be this first is not normal enoghe,

but................

interesting to have a blog in English about your course. Isn`t?

TRY IT

in this blog I am going to write about finance, the course I am going to countinue for master.

Please give me your recommends and help me to improve my information in this field,as I am sure we can improve with each other

I look forward for your helps