Hello I’m Paul Kofman, Dean of the Faculty of Business and Economics at the University of Melbourne and a professor of finance. Welcome to this course on global capital markets. Sound corporate financial decision making requires reliable price signals and market expectations of future prices. Fortunes are made and lost on global capital markets. But they're not just the playground for hands on day traders, arbitraging hedge funds and unscrupulous speculators. CFOs rely on the efficiency, transparency, and liquidity of the capital markets they access on a regular basis. In this second course of our finance specialization series of four, you will learn how financial markets work, how they facilitate price discovery, and how that information assists CFOs in making optimal financing and risk management decisions in corporate investments. In this first module we will be providing an introduction to key global markets. We'll take a closer look at the financial, foreign exchange, and commodity markets that matter most to corporations. Each course is self contained, yet integrated and connected within the specialization. There are four modules per course with quizzes and reflective assessment. There will also be corporate check-ins and a final capstone course delivered in partnership with BNY Mellon. So let's get started with this module. What or where are those markets of such importance to corporations? Why do markets exist? Who drives the financial markets? Why do companies need financial markets in the first place? And lastly, why do some markets nowadays have a bad reputation? What's been going on? In this module we'll take a different angle from what you will typically get when discussing financial markets. Our starting point is to understand the global financial markets from a corporation's perspective. We're interested in the efficiency of its business operations and financial decision making. And for that, we need a proper understanding of how financial markets work. Sound financial decision-making requires knowledge, deep knowledge, and an understanding of capital markets, financial markets, foreign exchange markets and commodity markets. So who's interested? Well, that would be the analysts and it would be the managers, the CFOs. So consider Kellogg's Corporation. Here's a list of the activities that Kellogg's engages in, and takes appropriate, relevant financial decisions for. First, Kelloggs would be buying, importing the grains to process into it's cereals. It will do that domestically, but it would also import those grains from overseas. And, therefore, need access to foreign currencies. Then, once the cereals have been produced, Kellogg's would be exporting those overseas as well. The cereals would be paid for in foreign currencies, and Kellogg's would like to translate the earnings in foreign currencies into domestic currency. Kellogg's would also be producing some of the cereals overseas and therefore incur costs in foreign currencies but also get revenue in foreign currencies. As we'll see from the financial statement, Kellogg’s has been borrowing short-term money on the money markets. It does that to streamline its cash flows. Kellogg's has also been borrowing long term, long term money to finance its takeovers and one of the more recent examples there is the takeover of Pringles. And last but certainly not least, Kellogg's would occasionally have the opportunity to issue new equity capital shares or re-purchase outstanding shares as it has been doing over the past. All of those activities involve financial transactions that are rooted through these global capital markets. Hence a sound understanding of how these capital markets work would significantly assist Kellogg's in making appropriate business decisions. Just referring back to the financial statement is already illustrative of the need for Kellogg's to access financial and commodity markets. You'll see here on the liability side of the balance sheet, that there are quite a few items there, long term debt, current maturities of long term debt, notes payable, accounts payable, that would all have a market value noted on the relevant financial markets. We'll take a closer look at the liabilities of Kellogg's, and see how that translates to Kellogg's excess to these financial markets. But before we do all that, let's go back to the basics, and come up with a proper definition of a capital or financial market. Financial markets provide financial intermediation between what we label as surplus units, those investors and lenders that have too much money, and want to invest it, and deficit units, that would mean the borrowers, those who need the money to more efficiently allocate scarce capital, because the deficit units would have the appropriate investment projects in which to invest the surplus deficits investors money. So global capital markets are traditionally located in the financial centers that we know well, Wall Street, London, Frankfurt, Tokyo. But increasingly, these markets are losing their geographical destination and are becoming virtual markets. That has significant repercussions for corporations in terms of improving global access to capital and thereby increasing the scope of investment projects and also for the investors side, it improves the ability to engage in a wider range of investment opportunities. So here's a short list of the markets that we will consider in the following. We will spend some time discussing the equity market. We've already seen it when we were discussing the discrepancy between market value and book value of equity in the previous course. We'll talk about debt markets, also reliable for the liabilities of the corporation. And we'll talk about foreign exchange markets for globally operating businesses like Kellogg's. We'll talk about commodity markets, markets that provide excess to the raw materials, the primary commodities needed by corporations like Kellogg's and we'll finish our discussion, our introduction to the markets, by discussing the risk management opportunities provided on the derivatives market.
