I NVESTMENTS AND PORTFOLI O MANAGEMENT TOPI C 1

Deakin University
T O P I C 1
Financial markets
Introduction
In our fast-paced society, we are constantly confronted with choices relating to
income and consumption. These choices can relate to basic, daily activities such
as:
Should I buy a new or second-hand car?
Which job should I apply for?
Should I invest in shares?
Do I want to own my own home? and
Do I want to be wealthy?
The answers to these questions and others relating to income and consumption
will have a significant impact on a persons life and their standard of living.
This topic examines the notion of investment decisions by introducing the
investment process and expands on performance measures. For many of you this
will be familiar territory and should be regarded essentially as important revision as it
provides background for the remaining topics in this unit. The topic further expands
on the structure of the Australian financial market by reinforcing students
knowledge on the nature of financial markets.
Objectives
At the completion of this topic you should be able to:
understand the nature of an investment and describe the key steps in the
investment process
understand the time value of money concept
understand the concept of return and the trade off between risk and return.
understand the role and importance of normal distribution
describe the structure of Australian financial markets
explain the relative importance of Australian financial markets within a global
context
explain the linkages between the various Australian financial markets and the
linkages between Australian and international financial markets
describe the nature of the various derivative securities and the markets in
which they are traded
describe the various sources of information available to market participants
2 TOPI C 1 I NVESTMENTS AND PORTFOLI O MANAGEMENT
Deakin University
understand that some information sets are readily available to all market
participants while other types of information are private or privileged
information.
Learning resources
Textbook
Riely F.K. and Brown, K.C. Investment Analysis & Portfolio Management. 10
th

edn., 2012. chs 1, 2 & 4.
Question 1.1 (Chapter 1)
Questions 2, 3, 5 & 6 from Rielly and Brown 2012, p. 26.
Problems 1, 2, 3, 5 & 6 from Rielly and Brown 2012, p. 27 & 28.
Question 1.2 (Chapter 2)
Questions 1, 2, 3 & 7 from Rielly and Brown 2012, p. 56.
Question 1.3 (Chapter 4)
Questions 1, 2, 3, & 10 from Rielly and Brown 2012, p. 119 & 120.
Problems 7 from Rielly and Brown 2012, p. 121.