Financial Economics

Financial economics is the branch of economics studying the interrelation of financial variables, such as prices, interest rates and shares, as opposed to those concerning the real economy. Financial economics concentrates on influences of real economic variables on financial ones, in contrast to pure finance.

It studies:

• Valuation - Determination of the fair value of an asset
  • How risky is the asset? (identification of the asset appropriate discount rate)
  • What cash flows will it produce? (discounting of relevant cash flows)
  • How does the market price compare to similar assets? (relative valuation)
  • Are the cash flows dependent on some other asset or event? (derivatives, contingent claim valuation)

• Financial markets and instruments
  • Commodities - topics
  • Stocks - topics
  • Bonds - topics
  • Money market instruments- topics
  • Derivatives - topics

• Financial institutions and regulation

Financial Econometrics is the branch of Financial Economics that uses econometric techniques to parameterise the relationships.

Payment System

Online shoppers commonly use credit card to make payments, however some systems enable users to create accounts and pay by alternative means, such as:

• Debit card
• Various types of electronic money
• Cash on delivery (C.O.D., offered by very few online stores)
• Cheque
• Wire transfer/delivery on payment
• Postal money order
• Reverse SMS billing to mobile phones
• Gift cards
• Direct debit in some countries

Some sites will not allow international credit cards and billing address and shipping address have to be in the same country in which site does its business. Other sites allow customers from anywhere to send gifts anywhere. The financial part of a transaction might be processed in real time (for example, letting the consumer know their credit card was declined before they log off), or might be done later as part of the fulfillment process.

While credit cards are currently the most popular means of paying for online goods and services, alternative online payments will account for 26% of e-commerce volume by 2009 according to Celent.

Online Shopping

Online shopping pre-dates the internet/www, the IBM PC and Microsoft. It was invented in the UK in 1979 by Michael Aldrich of Redifon Computers. Aldrich connected a modified 26" colour television to a real-time transaction processing computer via a domestic telephone line and demonstrated online shopping. From 1980 onwards he sold his systems in the UK with considerable success.

The world's first recorded B2B online shopping system was Thomson Holidays in March 1981. The world's first recorded B2C was Gateshead SIS/Tesco in May 1984. The world's first recorded online home shopper was Mrs Jane Snowball of Gateshead, England in May 1984.During the 1980s online shopping was also used extensively in the UK and some parts of continental Europe by auto makers Peugeot-Talbot, Ford, Nissan and General Motors. All these organizations and others, particularly in Financial Services and manufacturing industry, used the Aldrich systems. These systems operated over the switched public network in dial-up and leased line modes. There was no broadband capability.

In 1990 Tim Berners-Lee created the first World Wide Web server and browser. In 1992 Charles Stack created the first online book store, Book Stacks Unlimited (aka Books.com), two years before Jeff Bezos started Amazon. In 1994 other advances took place, such as online banking and the opening of an online pizza shop by Pizza Hut. During that same year, Netscape introduced SSL encryption of data transferred online, which has become essential for secure online shopping. In 1995 Amazon expanded its online shopping, and in 1996 eBay appeared.^[

Trade

Trade is the voluntary exchange of goods, services, or both. Trade is also called commerce or transaction. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Later one side of the barter were the metals, precious metals (poles, coins), bill, paper money. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade.

Trade exists for man due to specialization and division of labor, most people concentrate on a small aspect of production, trading for other products. Trade exists between regions because different regions have a comparative advantage in the production of some tradable commodity, or because different regions' size allows for the benefits of mass production. As such, trade at market prices between locations benefits both locations.

Trading can also refer to the action performed by traders and other market agents in the financial markets.