budget & finance (ie31)ba

8/3/2019 Budget & Finance (Ie31)Ba

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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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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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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.

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