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I.FINANCE a field that studies and
addresses the ways in whichindividuals, businesses, andorganizations raise, allocate,and use monetary resourcesover time, taking into account
the risks entailed in theirprojects.
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The term finance may thusincorporate any of the following:
The study of money and otherassets (management andcontrol)
As a verb, "to finance" is toprovide funds for business or foran individual's large purchases
(car, home, etc.)
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ACTIVITY OF FINANCE : application of techniques that
individuals and organizations(entities) use to manage their
financial affairs
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An entity whose incomeexceeds its expenditure canlend or invest the excessincome
On the other hand, an entity
whose income is less than itsexpenditure can raise capitalbyborrowing or selling equity
claims, decreasing its expenses,or increasing its income
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The lender can find a borrower,a financial intermediary, such asa bank or buy notes or bonds in
the bondmarket The lender receives interest, the
borrower pays a higher interestthan the lender receives, andthe financial intermediarypockets the difference
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DIFFERENT BANKINGACTIVITIES:
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BANKS : accepts deposits from lenders,
on which it pays the interestthen lends these deposits to
borrowers allow borrowers and lenders, of
different sizes, to coordinatetheir activity
compensators of money flows inspace
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WHO USES FINANCE???
by individuals (personal finance)
by governments (public finance)
by businesses (corporatefinance)
by a wide variety of
organizations including schoolsand non-profit organizations
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DIFFERENT TYPES OF FINANCIALINSTITUTIONS :
1. Commercial Banks
2. Savings Banks
3. Credit Unions
4. Currency Exchanges (orcheck cashing stores)
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1. Commercial Banks
Also known as wholesale banks
work with both individuals andbusinesses and offer a variety ofproducts
Certain banks specialize inbusiness customers only
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2. Savings Banks
financial institutions thatspecialize in consumer loans
They generally offer the samekinds of savings and checkingaccounts as a commercial bankoffers
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3. Credit Unions
financial organizations where all thecustomers share a commonaffiliation
Unlike commercial banks or savingsbanks, credit unions are run andmanaged by their customers.Depending on the size of the credit
union they may offer their members many
of the services available atcommercial and savings banks
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4. Currency Exchanges (orcheck cashing stores)
differ from commercial banks,savings banks, and credit unionsbecause they do not accept deposits
or make loans to cash government checks or obtain
money orders. A company orindividual might request that a debt
be paid by money order if it isuncertain of a persons ability to
repay the debt
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4. Currency Exchanges (orcheck cashing stores)
They earn a profit by charging afee for most of their services.These feesare generally much
higher than comparable servicesat a commercial bank or creditunion
often located in areas wherethere are no other financialinstitutions
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PROCUREMENT OF FUNDS: the acquisition of goods or services
at the best possible total cost ofownership, in the right quantity and
quality, at the right time, in the rightplace for the direct benefit or use ofthe governments, corporations, orindividuals generally via, but not
limited to a contract
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Two types ofprocurement of funds :1. Long-term capital
2. Short-term loans
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Long Term Capital Has fixed-term investments for
as long as 10-15 years maturity
Usually provided by largeinvestment banking houses,insurance companies, andinstitutional and endowment
trust funds
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Short Term andIntermediate Loans Short term loans may range
from 30 days up to two years
Intermediate loans up to fiveyears
The field occupied by the
regular commercial banks,middlemen credit
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UTILIZATION OF FUNDS: an important aspect of financial
management
avoids the situations wherefunds are either kept idle orproper uses are not being made
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FINANCE MANAGER : who oversee the preparation of
financial reports, directinvestment activities, and
implement cash managementstrategies
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DUTIES OF FINANCIALMANAGER:
Controller
Treasurer or finance officer
Credit manager
Cash manager
Risk and insurance manager
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Controllers
direct the preparation offinancial reports that summarizeand forecast the organizations
financial position in charge of preparing special
reports required by regulatoryauthorities
oversee the accounting, audit,and budget departments
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Treasurersor finance officers
direct the organizations financial
goals, objectives, and budgets
oversee the investment of funds,
manage associated risks, supervisecash management activities, executecapital-raising strategies to support afirms expansion, and deal with
mergers and acquisitions
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Credit managers
oversee the firms issuance of
credit, establishing credit-ratingcriteria, determining credit
ceilings, and monitoring thecollections of past-due accounts
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Cash managers
monitor and control the flow ofcash receipts anddisbursements to meet the
business and investment needsof the firm
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Riskand insurance managers
oversee programs to minimizerisks and losses that might arisefrom financial transactions and
business operations undertakenby the institution
manage the organizations
insurance budget
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Finance is one of the mostimportant aspects of businessmanagement. Without proper
financial planning a newenterprise is unlikely to besuccessful. Managing money is
essential to ensure a securefuture, both for the individualand an organization.