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FL01 - Introduction and Capital Structure I

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FL01 - Introduction and Capital Structure I

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  • January 15, 2016
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  • 2015/2016
  • Lecture notes
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FL01 25/9/15 Prof. Michael Shillig


INTRODUCTION TO FINANCE, CREDIT & SECURITY

INTRODUCTION
 2hr exam in Jan – choose 2 out of 6 (PQ and/or Essays)
 2 formative essays throughout the semester

AIMS AND OBJECTIVES
 Finance and finance theory
 Law of credit and security

FINANCE
 How companies carry out their business through equity and debt
 How to value things – in particular financial assets
o Share, bonds, companies, investment projects
o Trying to buy stuff that is offered cheaper but worth more than the
price
o Whether to allocate resources to a particular financial asset – if
more valuable than price (cost of acquisition)
 Hybrid of:
o Economics (making choices under constraint)
 In accordance with preference order
o Statistics (dealing with risk and randomness)
 Investments are risky – quantify risk in order to determine
value of financial assets
o Accounting (the language of business)

CREDIT AND SECURITY
 Equity finance v debt finance
o Equity finance – found in company law, corporate law, etc.
 Focus will be on the legal structures that support debt finance
o Debt finance – contract or securities transaction
o Securities regulation, etc.
 DON’T CONFUSE – securities with security interests
o (investment) securities: negotiable instruments freely tradable in
financial markets
 Held through a chain of intermediaries
 E.g. shares, bonds, notes, derivatives, hybrid instruments
o Security interests: proprietary interests in assets in order to ensure
repayment of debt
 E.g. mortgage, floating charge, fixed charge

COURSE OVERVIEW
 Basics of finance and finance theory
o Capital structure & financial statements (week 1 & 2)
o Compounding/discounting – math (week 3)
o Capital budgeting/NPV – how to allocate resources (week 4)
 Whether to acquire asset or not – if NPV >0
 Impact on law of credit and security
o Syndicated lending
o Debt securities

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