FINANCE & BUDGETING

IE31 (T) GROUP 1

I.FINANCE

a field that studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects.

The term finance may thus incorporate any of the following:

The study of money and other assets (management and control) As a verb, "to finance" is to provide funds for business or for an individual's large purchases (car, home, etc.)

ACTIVITY OF FINANCE :

application of techniques that individuals and organizations (entities) use to manage their financial affairs

An entity whose income exceeds its expenditure can lend or invest the excess income On the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing its expenses, or increasing its income

The lender can find a borrower, a financial intermediary, such as a bank or buy notes or bonds in the bond market The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary pockets the difference

DIFFERENT BANKING ACTIVITIES:

BANKS :

accepts deposits from lenders, on which it pays the interest then lends these deposits to borrowers allow borrowers and lenders, of different sizes, to coordinate their activity compensators of money flows in space

WHO USES FINANCE???

by individuals (personal finance) by governments (public finance) by businesses (corporate finance) by a wide variety of organizations including schools and non-profit organizations

DIFFERENT TYPES OF FINANCIAL INSTITUTIONS :

1.
2. 3. 4.

Commercial Banks Savings Banks Credit Unions Currency Exchanges (or check cashing stores)

1. Commercial Banks

Also known as wholesale banks work with both individuals and businesses and offer a variety of products Certain banks specialize in business customers only

2. Savings Banks

financial institutions that specialize in consumer loans They generally offer the same kinds of savings and checking accounts as a commercial bank offers

3. Credit Unions

financial organizations where all the customers share a common affiliation Unlike commercial banks or savings banks, credit unions are run and managed by their customers. Depending on the size of the credit union they may offer their members many of the services available at commercial and savings banks

4. Currency Exchanges (or check cashing stores)

differ from commercial banks, savings banks, and credit unions because they do not accept deposits or make loans to cash government checks or obtain money orders. A company or individual might request that a debt be paid by money order if it is uncertain of a persons ability to repay the debt

4. Currency Exchanges (or check cashing stores)

They earn a profit by charging a fee for most of their services. These fees are generally much higher than comparable services at a commercial bank or credit union often located in areas where there are no other financial institutions

PROCUREMENT OF FUNDS:

the acquisition of goods or services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place for the direct benefit or use of the governments, corporations, or individuals generally via, but not limited to a contract

Two types of procurement of funds :

1. Long-term capital 2. Short-term loans

Long Term Capital

Has fixed-term investments for as long as 10-15 years maturity Usually provided by large investment banking houses, insurance companies, and institutional and endowment trust funds

Short Term and Intermediate Loans

Short term loans may range from 30 days up to two years Intermediate loans up to five years The field occupied by the regular commercial banks, middlemen credit

UTILIZATION OF FUNDS:

an important aspect of financial management avoids the situations where funds are either kept idle or proper uses are not being made

FINANCE MANAGER :

who oversee the preparation of financial reports, direct investment activities, and implement cash management strategies

DUTIES OF FINANCIAL MANAGER:

Controller Treasurer or finance officer Credit manager Cash manager Risk and insurance manager

Controllers

direct the preparation of financial reports that summarize and forecast the organizations financial position in charge of preparing special reports required by regulatory authorities oversee the accounting, audit, and budget departments

Treasurers or finance officers

direct the organizations financial goals, objectives, and budgets oversee the investment of funds, manage associated risks, supervise cash management activities, execute capital-raising strategies to support a firms expansion, and deal with mergers and acquisitions

Credit managers

oversee the firms issuance of credit, establishing credit-rating criteria, determining credit ceilings, and monitoring the collections of past-due accounts

Cash managers

monitor and control the flow of cash receipts and disbursements to meet the business and investment needs of the firm

Risk and insurance managers

oversee programs to minimize risks and losses that might arise from financial transactions and business operations undertaken by the institution manage the organizations insurance budget

Finance is one of the most important aspects of business management. Without proper financial planning a new enterprise is unlikely to be successful. Managing money is essential to ensure a secure future, both for the individual and an organization.