Financial Markets Overview: Assessing Benefits and Costs of Investments - Prof. Steven Hac, Study notes of Systems Engineering

Download Financial Markets Overview: Assessing Benefits and Costs of Investments - Prof. Steven Hac and more Study notes Systems Engineering in PDF only on Docsity! FINANCIAL MARKET OVERVIEW Economic Evaluation of Investments • BENEFIT must exceed COST ⎯Must CORRECTLY assess ALL of the benefits and costs ⎯Must correctly incorporate the dimensions of RISK and TIME • REAL Investment ⎯Investments in CAPITAL (plant, equipment, real estate), Labor, Materials, Energy to produce GOODS and/or SERVICES Capital Markets • Links BUYERS and SELLERS of capital • Buyers: Consumers and Firms ⎯Consumers borrow against future earnings to finance consumption today ⎯Firms make real investments today to generate a growth in future earnings ⎯Firms finance via debt, retained earnings and new equity For BUYERS of capital: Availability, but at what cost? • Sellers: Consumers via savings, and Firms through retained earnings For SUPPLIERS of capital: Return, but at what risk? • Financial Intermediaries: ⎯Who: Commercial and Investment Banks, Savings and Loans, Insurance ⎯Role: Link buyers and sellers ⎯Benefits: ⎯Lowers TRANSACTION COSTS ⎯Facilitates RISK MANAGEMENT via the transfer of risk ⎯Buyers who wish to reduce risk ⎯Sellers who are willing to take on risk, at a price