D e f i n i t i o n o f F i n a n c e ,

Financia l M a n a g e r ’ s
A ct i v i t i e s a n d F i n a n c i a l
In s t i t u t i o n s a n d M a r k e t s
M O DU L E 1
 LESSON 1

Major Role of Financial Management

and the Different Individuals Involved
 Finance is always of great importance, be it in a
business or in one's everyday life.
This is relevant in project management and business
process and also in managing risks in everyday life.
You can face financial risks at different situations such
as buying a car or investing on gold and so on.
Flex Your Financially Inclined Mind

Directions: Arrange the jumbled words to find the terms

being described by the clues provided below. These business
terms and concepts will be useful for you as you study the
lessons for this module.
Here are your clues:
1. It describes activities associated with banking, leverage or debt,
credit, capital markets, money, and investments.
ANNCFIE
2. It is the interlocking functions of creating corporate policy and
organizing, planning, controlling, and directing an organization's
resources in order to achieve the objectives of that policy.
NAEMMAENGT
3. It is a conclusion or resolution reached after consideration.
ICISDEON
4. It is the process of creating a plan to spend your money. This
spending plan is called a budget.
DINGEBUTG
5. It is the fact or condition of being involved with or participating in
something.
E N I O LV E M T N V
Let’s raise your level of business finance skills. Answer the following
crossword puzzle using the clues below.
ACROSS
1. Deputizing for a
president
4. Official chosen to
preside

DOWN
2. Stockholders
3. Responsible for
controlling company
Finance can be defined:
o Science and art of managing a large amount of
money.
o Giving of monetary support for an enterprise
o Monetary resources and affairs of a government,
organization or person
TYPES OF FINANCE:
o Public finance – includes tax systems, government expenditures,
budget procedures, stabilization instruments, debt issues and
government concerns
o Corporate finance – involves in managing assets and debt for a
business
o Personal finance – includes proper management of an individual’s
income and expenses so enough money is left over for savings
 Budgeting is the act of estimating revenue (in the form of their
allowance) and expenses over a period of time
Investments come in many forms that will generate income or
appreciate in the future.
Sources of funds. When faced with financial difficulties (in this
case, the lack of funds to meet the current expenses) we look for people
or institutions that will give us the money we need.
Forms of Business Organizations:
o Sole Proprietorship - A business owned by one person and
operated for his or her own profit.
o Partnership - A business owned by two or more people and
operated for profit.
o Corporation – An entity created by law owned by shareholders.
Corporations may either be privately owned or publicly owned.
Overall objective of a shareholder should be wealth maximization
 LESSON 2
Distinguish a Financial Institution from
Financial Instrument and Financial
Market
1. These FI’s accept deposits and provides security and
convenience to their customers and offer customers
safekeeping of their money.
A. Commercial banks
B. Investment banks
C. Insurance companies
D. Brokerages
2. Financial intermediary that performs a variety of services
for businesses and some governments which include
underwriting debt and equity offerings
A. Commercial banks
B. Investment banks
C. Insurance companies
D. Brokerages
3. Pool risk by collecting premiums from a large group of
people who want to protect themselves and/or their loved
ones against a particular loss
A. Commercial banks
B. Investment banks
C. Insurance companies
D. Brokerages
4. Acts as an intermediary between buyers and sellers to facilitate
securities transactions and are compensated via commission after
the transaction has been successfully completed
A. Investment banks
B. Insurance companies
C. Brokerages
D. Investment Companies
5. A corporation or a trust through which individuals invest in
diversified, professionally managed portfolios of securities
by pooling their funds with those of other investors
A. Investment banks
B. Insurance companies
C. Brokerages
D. Investment Companies
 Financial Management deals with decisions that are
supposed to maximize the value of shareholders’ wealth,
collect fund for the company at a low cost and use this
collected fund for earning maximum profits and plan and
control the finance of the company to achieve objectives of
company
Financial Managers
and Their Main Responsibilities
Financial Manager – person who takes care of all the important financial functions of
an organization
MAIN FUNCTIONS OF A FINANCIAL MANAGER
o Performing financial analysis and planning
o Investment decision
o Financing decision
o Dividend decision
EMERGING ROLES OF A FINANCIAL MANAGER
o Financial engineering
o Foreign exchange management
o Treasury operators
o Investors communication
o Management control
EMERGING ROLES OF A FINANCIAL MANAGER
o Investment planning
o Pension fund management
o Credit manager
o Tax management
o Insurance risk management
Guiding Principles for Financial Management
Systems

• consistency – financial policies and systems must remain consistent

over time (the quality of always behaving or performing in a similar
way, or of always happening in a similar way)
Guiding Principles for Financial Management
Systems

• accountability – must be able to explain and demonstrate to all

stakeholders how you have used your resources and what you have
achieved (a situation in which someone is responsible for things that
happen and can give a satisfactory reason for them)
Guiding Principles for Financial Management
Systems

• transparency – must be open about its work and its finances; making
information available to all stakeholders (a situation in which business
and financial activities are done in an open way without secrets, so that
people can trust that they are fair and honest)
Guiding Principles for Financial Management
Systems

• integrity – must operate with honesty and propriety (the quality of

being honest and having strong moral principles that you refuse to
change)
Guiding Principles for Financial Management
Systems

• financial stewardship – must take good care of the financial resources

it has been given and ensure that they are used for the purpose intended
(stewardship - the way in which that person controls or organizes it)
Guiding Principles for Financial Management
Systems

• accounting standards – system for keeping financial records and

documentation must observed accepted external accounting standards
(standards - a pattern or model that is generally accepted)
THE FINANCIAL INSTITUTIONS

o intermediaries that channel the savings of individuals,

businesses, and governments into loans or investments.
o Establishment that conducts financial transactions such as
investments, loans and deposits
THE FINANCIAL INSTITUTIONS
o intermediaries that channel the savings of individuals, businesses, and
governments into loans or investments.
o Establishment that conducts financial transactions such as
investments, loans and deposits
o Everything from depositing money to taking out loans and
exchanging currencies must be done through financial institutions
Here Are Some Major Categories Of Financial
Institutions:

1. Commercial Banks
- accept deposits and provides security and convenience to their
customers.
- Offer customers safekeeping for their money
▪ Commercial Banks
- With banks, consumer no longer need to keep large amounts of
currency on hand; transactions can be handled with checks, debit or
credit cards
- Make loans that individuals and businesses use to buy goods or
expand business operations
Here Are Some Major Categories Of Financial
Institutions:

2. Investment Banks
- Financial intermediary that performs a variety of services for
businesses and some governments
- These services include underwriting debt and equity offerings
Here Are Some Major Categories Of Financial
Institutions:

3. Insurance Companies
- Pool risk by collecting premiums from a large group of people who
want to protect themselves and/or their loved ones against a particular
loss
▪ Insurance Companies
❖ Fire ❖ Car accident
❖ Illness ❖ Lawsuit
❖ Disability ❖ Death
- Helps individual and companies manage risk and preserve wealth
Here Are Some Major Categories Of Financial
Institutions:

4. Brokerages
- Acts as an intermediary between buyers and sellers to facilitate
securities transactions
- Are compensated via commission after the transaction has been
successfully completed
Here Are Some Major Categories Of Financial
Institutions:

5. Investment Companies
A corporation or a trust through which individuals invest in diversified,
professionally managed portfolios of securities by pooling their funds
with those of other investors
Here Are Some Major Categories Of Financial
Institutions:

6. Nonbank Financial Institutions

- Savings and loans or thrifts, resembles banks in many aspects. Must
have 65% or more of their lending in residential mortgages
- Credit unions -another alternative to regular commercial banks;
almost always organized as not for profit cooperatives
• Private Placements - the sale of a new security directly to
an investor or group of investors.
• Public Offering - The sale of either bonds or stocks to the
general public.
• Financial Instruments – is a real or a virtual document
representing a legal agreement involving some sort-of
monetary value
THE FINANCIAL MARKETS
• A broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and
derivatives
• Typically defined as by having transparent, basic regulations on
trading, costs and fees and market forces determining the prices of
securities and trade.
• Examples as such: Philippine Stock Exchange & Makati Stock
Exchange
CAPITAL MARKETS

• Capital markets are venues where savings and investments

are channelled between the suppliers who have capital and
those who are in need of capital. The entities that have capital
include retail and institutional investors while those who seek
capital are businesses, governments, and people.
• Capital markets are composed of primary and secondary markets.
The most common capital markets are the stock market and the
bond market.
• Capital markets seek to improve transactional efficiencies. These
markets bring those who hold capital and those seeking capital
together and provide a place where entities can exchange
securities.
STOCK MARKETS
• Also called equity market
• Sometimes called share market
• Allows investors to buy and sell shares in publicly traded companies
• Aggregation of buyers and sellers (a loose network of economic
transactions, not a physical facility or discrete entity) of stocks (also
called shares), which represent ownership claims on businesses
BOND MARKETS

• Often called the debt market, fixed-income market, or credit market

—is the collective name given to all trades and issues of debt securities.
• The bond market broadly describes a marketplace where investors buy
debt securities that are brought to the market by either governmental
entities or publicly-traded corporations.
MONEY MARKET

• Refers to trading in very short-term debt investments. At the wholesale

level, it involves large-volume trades between institutions and traders.
• At the retail level, it includes money market mutual funds bought by
individual investors and money market accounts opened by bank
customers
FOREIGN EXCHANGE MARKET
• (Forex, FX, or currency market) is a global decentralized or over-the-
counter (OTC) market for the trading of currencies.
• This market determines foreign exchange rates for every currency.
• It includes all aspects of buying, selling and exchanging currencies at
current or determined prices.
INTERBANK MARKET
• The global network utilized by financial institutions to trade
currencies between themselves.
• While some interbank trading is done by banks on behalf of large
customers
• most interbank trading is proprietary, meaning that it takes place on
behalf of the banks' own accounts
PRIMARY MARKETS

• Where securities are created.

• It's in this market that firms sell (float) new stocks and bonds to the
public for the first time.
• An initial public offering, or IPO, is an example of a primary market.
SECONDARY MARKET

• Where investors buy and sell securities they already own.

• It is what most people typically think of as the "stock
market," though stocks are also sold on the primary market
when they are first issued
FINANCIAL INSTRUMENTS
• Assets that can be traded
• Seen as packages of capital that may be traded
• Provide an efficient flow and transfer of capital all throughout the
world’s investors
• These assets can be cash, contractual right to deliver or receive cash or
another type of financial instrument or evidence of one’s ownership of
an entity.
TYPES OF FINANCIAL INSTRUMENTS

1. Cash Instruments
▪ can be securities that are easily transferable
▪ May also be deposits and loans agreed upon by borrowers
and lenders
TYPES OF FINANCIAL INSTRUMENTS

2. Derivatives
▪ A financial contract with a value that is derived from an
underlying asset
▪ Its value are based on the instrument’s underlying
components such as assets, interest rates or indices
TYPES OF FINANCIAL INSTRUMENTS
3. Asset Class
▪ Debt-based: Treasury bills, Commercial papers, Bonds, and
Cash equivalents
▪ Equity based
▪ Stocks