The Assumptions?

Assumptions for this course, and by that I mean not assumptions about you or me, we have talked a little bit about that, what our roles will be, how should we think about them. There will be TAs helping you, teaching assistants and so on, there will be forums, there will be a lot of stuff going on, but the assumptions here I'm talking about are Related to the content. Because modern finance is based on a structure that is presumed many times, especially by people. So in the west, who were not exposed to differences and different economic systems or lack of financial access, and so on.

So I'll make those assumptions clear, because I'll be working with those, and it would be unfair for you not to know them. The first one assumption is kind of important, and is related to just about every other assumption. I'm going to assume that for the most part that is competition. Competition in markets, competition in financial investments, competition in general. And the reason is, you need competitive markets to realize as we go down the road, to understand the beauty of finance, and I think over time markets have become competitive. Though I must admit, that's sometimes they certainly don't seem so. So there are issues of monopolistic practices and so on but for the most partly assume competitive markets.

Another way of saying that is that the cost of doing business meaning high taxes, high pay offs to just start something, fees and so on are not so huge that the value proposition becomes questionable. Of course there are taxes in life. Of course they're frictions we call them in finance and economics, but the frictions I'll assume aren't so large that you can't even do what you want to do. That can happen in real life. Please recognize that. And I leave it up to you to kind of see how applicable some of the assumptions that we make are to your context.

But the hope is that over time, frictions and ways of doing business are easier, ways of interacting are easier with each other. Across the world rather then more difficult. Finally, and this is probably very important aspect of competitive markets is that capital, or money, needs to flow relatively easily. Because if it doesn't, then artificial interest rates, artificial barriers to access can happen. And we are going to assume for the most part, and this again is related to frictions, is that there's relative ease of flow of capital. By capital I mean money and resources for things to happen. And again, I'm highlighting this up front but you'll see them. When we apply stuff. So, keep these in mind.

They are not extreme assumptions, but I do admit that they are not applicable to every context. But, this is an introduction to finance and we have to make some fundamental assumptions.