Financial Economics

4 Key excerpts on "Financial Economics"

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  eBook - ePub

  Financial Economics

  Empowering Wealth, a Journey Into Financial Economics

  • Fouad Sabry(Author)
  • 2023(Publication Date)
  • One Billion Knowledgeable

    (Publisher)

  Chapter 1: Financial Economics

  Financial Economics is the subfield of economics characterized by a "focus on monetary activities" in which "money of one form or another is likely to appear on both sides of a trade." It focuses on the interrelationships of financial variables, such as share prices, interest rates, and exchange rates, as opposed to real economy variables. It focuses on asset pricing and corporate finance; the first from the perspective of capital providers, i.e. investors, and the second from the perspective of capital users. Thus, it provides the theoretical foundation for the majority of finance.

  The topic focuses on "the allocation and deployment of economic resources across space and time in an uncertain environment." It focuses on decision-making under uncertainty in the context of financial markets, the resulting economic and financial models and principles, and the derivation of testable or policy-relevant implications from acceptable assumptions. Thus, it also encompasses a formal investigation of the financial markets themselves, including market microstructure and market regulation. Microeconomics and decision theory serve as its foundations.

  Financial econometrics is the subfield of Financial Economics that uses econometric methods to parameterize the identified relationships. Mathematical finance is related to Financial Economics in that it derives and expands the mathematical or numerical models proposed by Financial Economics. In contrast to the microeconomic focus of Financial Economics, monetary economics is primarily macroeconomic in nature.

  The study of how rational investors would apply decision theory to investment management is the focus of Financial Economics. Thus, the subject is based on the fundamentals of microeconomics and derives several important conclusions for the application of decision making under uncertainty to financial markets. The fundamental theorem of asset pricing, which provides the conditions for arbitrage-free asset pricing, is derived from the underlying economic logic. The auxiliary formulae yield directly.

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  eBook - ePub

  Reformulation Of Keynesian Economics, A

  • Jagdish Handa(Author)
  • 2015(Publication Date)
  • WSPC

    (Publisher)

  This chapter addresses the reformulation of macroeconomics for a ‘financial economy’ to bring financial capital into its analysis. A barter economy is one in which economic agents do not need money as a medium of payments, nor do they need financial capital to fund their operations. A “monetary economy” differs from the barter one in that it requires that the exchanges of commodities financial instruments and labor be against money but not directly against other commodities, financial instruments or labor. Money in the medium of payments in such an economy; however, economic agents in such an economy do not necessarily need financial capital to produce or consume. A financial economy goes beyond a monetary economy in requiring that its economic agents must have the financial resources/capital (in addition to merely having money balances for exchanges) to fund their operations, such as, for firms, to purchase and hold physical capital and pay labor or, for consumers, to buy and hold consumer goods (including housing). We consider the modern economy to be a financial one.

  The amount of money held by the economic agent can be regarded as one element of the broad definition of financial capital. However, the role of money as facilitating exchanges with others is quite different from that of the financial capital, which is needed by firms and households to produce or consume. Since the role of money is a very distinctive one, we will treat money as distinct from financial capital. However, we define the financial economy as encompassing a monetary one but going beyond a monetary economy by requiring the use of financial capital.

  Financial capital differs from physical capital, with the former having a nominal form (i.e., in currency units) while the latter has a physical one. To stay with the usual terminology of economics, we will leave the word “capital” to continue to have its usual meaning as physical capital. We will often use the word “funds” as a short form for financial capital.

  Firms need financial capital to bridge the gap between the time when they incur costs and receive revenues from sales. A major part, though not all of it, of the need for financial capital arises from the firm’s use of physical capital, parts of which have a long life. For firms, while the need for working finance can be reduced by leasing the required physical capital rather than its outright purchase, in practice, most capital equipment is owned outright rather than leased.2

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  eBook - PDF

  Introduction to Financial Management

  • Sudanshu Pandeya(Author)
  • 2023(Publication Date)
  • Society Publishing

    (Publisher)

  INVESTMENT AND DECISION- MAKING IN FINANCIAL MANAGEMENT CHAPTER5 CONTENTS 5.1. Introduction .................................................................................... 158 5.2. Investment and Decisions in Finance .............................................. 158 5.3. Investments, Decisions, and Risk .................................................... 161 5.4. Decision Making: A Neuroeconomic Approach .............................. 165 References ............................................................................................. 169 Introduction to Financial Management 158 5.1. INTRODUCTION There are two methods to incur investment costs to make a profit. Fix investing, like equipment, plants, or structures, as well as financial investments, including stocks and bonds, are also examples of investments (Copur, 2015). Both types of funding may help a business expand. Economics examines risk from the viewpoint of judgment, looking at how people make choices when there is imperfect information. It is necessary to mix theories and previous investigations to comprehend and analyze risk (Fried and Hisrich, 1994). The pure theory could have certain flaws, while an empirical study done on its own might be limited and remain in its infancy. By fusing theory into practice, one may better identify the advantages and disadvantages of such a theory. Theories may be improved in this manner, which can lead to a greater comprehension of hazards. The chapter explains how mainstream economics approaches investment decisions and also what roles risk as well as uncertainty play in the judgment process (Figure 5.1) (Ahmed et al., 2021). Figure 5.1. Financial judgments. Source: https://qsstudy.com/investment-decision-financial-management/. In decision-making process, neuroeconomics has also investigated the presence of financial risks, including their role within decision-making processes.

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  How to Find Out About Banking and Investment

  The Commonwealth and International Library: Libraries and Technical Information Division

  • Norman Burgess, G. Chandler(Authors)
  • 2016(Publication Date)
  • Pergamon

    (Publisher)

  C H A P T E R 6 Financial Economics (Dewey Classification 332) BEFORE it is possible to examine works on specific branches of banking or investment, there is a vast literature of a more general coverage which merits attention. It should be remem-bered that much of this general literature will be of use not only for the broad aspects it may present, but also when more narrow fields are being investigated. A work where the author has deliberately selected an extensive rather than an intensive treatment may well provide suitable initial reading matter which will place the more specialized aspect into its proper relationship and focus. Much useful information, for example, on banking or the Stock Exchange will be found in volumes which attempt a survey of the complete monetary scene. A general practical consideration of the principles of modern finance, investment, the Stock Exchange, the valuation of assets, goodwill, business reorganizations, amalgamations, clearing systems, commercial and central banking, public and international finance, and trade is offered by Ε. M. Taylor in General Financial Knowledge: the principles and practice of finance, 8th edn. revised by F. R. G. Lowe and R. Robert (Harpenden, Textbooks Ltd., 1964), which also contains a glossary of financial terms. Other practical works include H. Jones, The Mathematics of Money (London, Blackie, 1965), where exercises and solutions are provided. There is a dis-cussion of the problems and calculations relating to loans, interest rates, mortgages, and investments with the aim of 45 46 HOW TO FIND OUT ABOUT BANKING AND INVESTMENT Financial Institutions in the United Kingdom A modern view of British financial institutions is given in Financial Institutions and Procedures, a symposium, revised edn. (London, Oyez, 1965), written especially for solicitors.

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