Finance: The Basics

By Erik Banks
296 pages
Routledge 2nd edition,  2010
ISBN: 041557336X

Being overhelmed by media news on all that strange financial terminology, and afraid of getting lost in complex mathematical models, I sought a friendly way into finance. And having just completed reading this book, I can say that it does deliver on its promise.

The book is relatively short and provides an easy, introductory way into its subject matter. The author explains adequately the basic tools and processes of Finance. More detailed analysis would require moving to another text.

The way it is written is mostly clear, not academic and rather detached. Although there were a few points of rather obscure mathematics, these were only a few. Most of the book makes for an easy read. 

A few points that I would keep from my reading the book:
-firms have two ways to finance their operations: equity and debt 
-Of the two, debt is cheaper than equity
-firms that don't have the right mix of them don't take full advantage of market financing opportunities stand to lose out to their competitors/ provide lower returns to their shareholders 
-therefore debt is not evil but part of normal business.  It is the abuse of economic circumstances and temporary psychological factors that turn it harmful
-not all business strive to minimise risks. Some of them energetically take on more risks, e.g. insurance companies, hedge funds
-the returns of such investment vehicles are way above market average, meaning they are here to stay (if it is left to their stakeholders to decide on that)
-Although many financial products are made to transfer risk (e.g. derivatives, options, swaps etc.) and could have a potentially beneficial impact on businesses, there seems to be a vague line between that and their exploitation through speculation for short-term profit.

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