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7 Describe the financial system and 8 Explain the Federal Reserve 9 Describe the global
Finance
Business function of planning, obtaining & managing a companys funds to accomplish its objectives in the most effective way
Financial Manager
Employees responsible for developing and implementing the firms financial plan and for determining the most appropriate sources and uses of funds.
Treasurer
Controller
VP of Finance
Treasurer
Capital Budgeting Cash Management Credit Management Dividend Disbursement Fin Analysis/Planning Pension Management Insurance/Risk Mngmt Tax Analysis/Planning
Controller
Cost Accounting Cost Management Data Processing General Ledger Government Reporting Internal Control Preparing Fin Stmts Preparing Budgets Preparing Forecasts
Investment Decisions
Most important of the three decisions.
What is the optimal firm size? What specific assets should be acquired? What assets (if any) should be
reduced or eliminated?
Financing Decisions
Determine how the assets (LHS of balance sheet) will be financed (RHS of balance sheet.)
What is the best type of financing? What is the best financing mix? What is the best dividend policy (e.g., dividendpayout ratio)?
How do we manage existing assets efficiently? Financial Manager has varying degrees of operating responsibility over assets. Greater emphasis on current asset management than fixed asset management.
Takes account of: current and future profits and EPS; the timing, duration, and risk of profits and EPS; dividend policy; and all other relevant factors. Thus, share price serves as a barometer for business performance.
What funds will the firm require during the appropriate period of operations? How to obtain the funds When more cash will be needed
Financial Control
Characteristics of Money
Divisibility
Portability Durability
Stability
Functions of Money
No wastage of time. Higher volume of transactions. Remove the problem of coincidence of wants. Widely acceptable. Increase level of Trade.
Ability of money to store value over the time. Durability factor enables to convert your income into future purchases. Completely liquid. However inflation can destroy this function.
M1 M2
Reasons
Day to Day operation/activities Inventory Dividends to stockholders Purchase of Land Purchase of Equipment ,Facilities
Sources of funds
Savers
Users
Financial
Markets
Insurance
Insurance is one of the oldest activities and is about the sharing of risks Whether its the risk of losing your car, you house or your life, super tanker or even an earth satellite, insurance provides a method of protection Insurance works on the principle that not everyone will suffer the same calamity at the same time
Pension Funds - 1
Theres a British custom that companies provide pensions for their employees after they retire It was 1 of the perks of employment and date from the days when people would spend their lives working for a single employer With some schemes, the employee made a contribution and the employer would match it With others, the employee might not have to make any contribution at all Then when you retired you would receive, for as long as you lived, say twothirds of your final salary Such schemes are called defined benefits schemes because you know what sort of pension you will be getting