FINANCE

Definition:
 Finance- is the study of how individuals or businesses
evaluate investment opportunities, business proposals,
and business projects, and raise capital.
 Financial Management- The efficient and effective

management of funds. It is the handling of all financial

matters, including analyzing financial statements,
evaluating investment opportunities which happens
before one actually starts investing, and raising capital
or funds from different sources.
Financial Institutions and the Key Individuals who play Vital Roles
Financial Institution
Evaluation of
Investment
Financial Institution
Lends fund
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BUSINESS
PROJECTS
DEPOSITOR BORROWER

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Financial Institution
Pays Interest Financial Institution
Return of Investment
 Financial
Institutions’ main role is to act as financial
intermediary. It means to be in the middle, to be the
go-between or link between the depositors who
have the money and the borrowers who need the
money
The Key Individual Roles
 Depositor- is the person who has the money and
deposits it in a savings account with a bank that
pools this together with the savings from other
depositors.
 Borrower- is the party at the other end, the one who

needs the funds and borrows the funds through

banks.
Financial Instruments and
Financial Markets
 Financialinstruments are the tools that help a
business’ daily operations and eventually make it
grow. These tools help the finance manager handle
his cash, his short term operating requirements,
and long-term business requirements
FINANCIAL INSTRUMENT BASIC CHARACTERISTICS

• Issued by the treasury/government

•Matures within one year
TREASURY BILLS
•Is generally default-free as government will exert
all effort to pay

•Issued by financially sound businesses to fund

investments in inventories and receivables.
•Maturity is about 9 months
•Generally low default risk as businesses have
good credit standing

COMMERCIAL PAPERS
FINANCIAL INSTRUMENTS
MONEY MARKET FUNDS
CONSUMER CREDIT, CREDIT CARD
BASIC CHARACTERISTICS
• Issued by banks or mutual fund companies
• No specific maturity date
• The degree of default risk is low
• these funds are usually invested in money
market instruments, treasuries and commercial
papers.
• Issued by banks, credit unions, finance
companies
•Maturity date varies
•Default risk varies