Professional Documents
Culture Documents
Financial Management
Financial Management represents the bridge between the firms real assets and financial assets
(Financing) (Capital budgeting) Real assets Financial Management Loans Equity shares
Primary
Others
Mobilization of funds
From where ? At what cost ? In what time ?
Deployment of funds
Fixed assets Current assets Investments Repayment of debts
Risk-return Trade-off
Investment (Risk-return) Financing (debt-equity)
The interface
Marketing
Credit to Customers F G holding in anticipation of high sales
Production
Equipment (buy/ lease) RM (Zero inventory)
HR
Staffing Promotions
R &D
Cost Monitor the developments
Top Management
Short / long term goals Overall effectiveness
Financial Function
Increase profitability
The challenges of F M
Treasury operations
Short term funds Management Speculative gains by anticipating interest rate movements
Foreign exchange
Currency fluctuation Hedging / Forward Contract .
Financial structuring
Debt- equity Arbitrage Pricing of new issue
Partnership
Co-Operative society
Company
Registration
Necessary
Compulsory
Name Capital
Ltd / Pvt ltd Pvt Ltd - Rs 1 L Public Ltd- Rs 5 L Pvt - 2 to 5 Public 7 to no limit Separate legal entity Limited to the capital Difficult/ lengthy procedure
Members
Single individual
2 to 20
10- no limit
Legal status
Not a separate legal entity Unlimited for partners Simple & related procedure
Liability
Dissolution
Financial system
25/02/2012 5/02/2012
10
Stage-2 Increase in per capita income Bilateral borrowings & higher financial intermediation Birth of financial intermediaries Financial intermediaries become large Big banks, investments, Mutual funds, NBFC, stock markets Financial system becomes more market oriented.
Formal
Informal
Financial Institutions
Financial markets
Financial instruments
Financial services
Regulators
Equity shares Preference shares Debts Time deposits MF units Insurance policies
Depositories Credit rating Factoring Merchant banking Lease & hire purchase Underwriting
Financial Institutions
Banking Institutions
Mutual funds
SCB
Sch Co op Banks
NBFC
DFI
Public MF s Private MF s
National State IFCI, IDBI,SIDBI, NABARD, HDFC SFC Exim bank, NHB SIDC
Financial Markets
Capital market
Money market
Treasury Bills Call money Commercial paper Certificate of Deposit
Forex market
Banks & other s
Equity Market
Debt Market
Bond market
Equity market
Foreign bonds
Euro bonds
Larger volume Speed of resource movement from one market to other Saver decides the place to invest Scope for instant arbitrage among various instruments in the market High volatility ( Failure of one segment affects others )
Functions
Efficient payment mechanism Providing information's to the company Gives sufficient indications to investors to track their portfolio.
Money markets
Short term markets Large volume of transactions CP/CD/TB/Call money are the instruments
Capital markets
Long term markets (equity /Debt) Large volume of transaction Equity shares / debt /debentures
Functions
Equilibrium force
(redistributes cash balance as per needs & liquidity )
Functions
Provides liquidity by selling financial assets in the markets Mobilizes long term savings for long term investments Improves efficiency of capital allocation through competitive pricing mechanism
Basis for management of liquidity & money in the economy Meeting short term requirement
Consumption less than production Surplus savings held in the form of financial assets Lending to productive investments
The surplus savings from households are transferred to deficit spending. This factor links Financial System to economy
Lenders Households Rest of the world Surplus Spending Economic Units Y > (C+I)
Borrowers Government
Capital formation
Economic growth
Y< (C+I)
Role of F. S. in economy
The achievements of national objectives depends on the financial system The country which wants to grow economically needs a vibrant F S. The existence of efficient financial system facilitates economic activities The growth of financial structure will lead to economic growth. Diverts the savings towards more productive use & increase the output of the economy. Markets & Institutions are prime movers for economic growth. Deeper the system, greater the stability & resilience. Accelerates the rate of savings through various financial instruments. Monetary policies are effective if financial markets are well developed.
Assignment
A discussion on Regulatory environment in India ( FEMA, Companies act, Industrial policy, MRTP act, SEBI & RBI)
Unit-1 concluded