Tareq

CHAPTER 1

AN OVERVIEW OF FINANCIAL MANAGEMENT

WHAT IS FINANCE?

1. The art and science of managing money:

A. "Art" implies there are some opportunities to be creative in managing money.

B. "Science" implies there are some proven facts underlying financial decisions.

2. The process, institutions, markets and instruments involved in the transfer of money between individuals, business, and governments.

MAJOR AREAS IN FINANCE:

1. Money and Capital Markets, which deals with

A. Securities Markets (Stocks Exchanges)

B. Financial Institutions (intermediaries that channel the saving of individuals, business, and government into loans and investments.)

Major Financial Institutions includes:

I. Commercial Banks, IV. Mutual Funds,

II. Investment Banks, V. Pension Funds,

III. Insurance Companies.

2. Investments (focuses on the decisions made by both individual and institutional investors as they choose securities for their investment portfolios.)

3. Financial Management “business finance,” (the performance of specific duties carried out by the financial manager of a business firm; such as: budgeting, financial forecasting, cash management, investment analysis.)

FINANCIAL MANAGEMENT IN THE

NEW MILLENNIUM

• Financial management is becoming increasingly important as a result of two key trends:

1. The globalization of business

2. The increased use of information technology.

• Both of these trends provide companies with exciting new opportunities to increase profitability and reduce risks.

• However, these trends are also leading to increased competition and new risks.

THE FINANCIAL STAFF’S

RESPONSIBILITIES

1. Forecasting and planning.

2. Major investment and financing decisions....