Senior High School

Business Finance
Module 1:
Introduction to Financial
Management

AIRs - LM
LU_ Business Finance_Module 1
 ABM – BUSINESS FINANCE
Module 1: Introduction to Financial Management
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form
without written permission from the copyright owners.

Development Team of the Module

Authors: Geneisis P. Villanueva

Editor: SDO La Union, Learning Resource Quality Assurance Team
Content Reviewers: Clarita Montemayor
Language Reviewer: Alex C. Somera
Illustrator: Ernesto F. Ramos, Jr.
Design and Layout: Angela Pauline C. Ganuelas

Management Team:

Atty. Donato D. Balderas Jr.

Schools Division Superintendent
Vivian Luz S. Pagatpatan, Ph.D
Assistant Schools Division Superintendent
German E. Flora, Ph.D, CID Chief
Virgilio C. Boado, Ph.D, EPS in Charge of LRMS
Lorna O. Gaspar EPS in Charge of ABM
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II

Printed in the Philippines by: _________________________

Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
Telefax: 072 – 205 – 0046
Email Address: launion@deped.gov.ph

LU_ Business Finance_Module 1

 SHS

BUSINESS FINANCE
Module 1:
Introduction to Financial
Management

LU_ Business Finance_Module 1

 Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear
learners, can continue your studies and learn while at home. Activities,
questions, directions, exercises, and discussions are carefully stated for you
to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you
step-by-step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in

each SLM. This will tell you if you need to proceed on completing this module
or if you need to ask your facilitator or your teacher’s assistance for better
understanding of the lesson. At the end of each module, you need to answer
the post-test to self-check your learning. Answer keys are provided for each
activity and test. We trust that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are
also provided to our facilitators and parents for strategies and reminders on
how they can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on
any part of this SLM. Use a separate sheet of paper in answering the exercises
and tests. And read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in

answering the tasks in this module, do not hesitate to consult your teacher
or facilitator.

Thank you.

LU_ Business Finance_Module 1

 Target

Finance is a system that involves the exchange of funds between borrowers

and lenders and investors. In the finance system, credit, money, and finance are
used as a medium of various exchanges So, they work as a known value for which
the service and goods are exchanged. Many fundamental concepts of finance come
from macro and micro economic theories such as time value of money which you
have studied in your previous lesson.
Financial institutions, financial market and financial instrument are parts of
every business. Let’s take it to the simplest explanation. In a company they were able
to produce products and after producing their product buyers such as supermarkets
etc. will now get the products to be sold. Some will pay through cheque and some
will pay it in cash. The company represents Financial institution; supermarts are
what we called financial markets and the mode of payment such as check and cash
are what we called financial instrument.

This module will provide you information and activities that will lead you to
understand financial Management, financial institution, financial instrument,
financial market and the different individuals involved

After going through this module, you are expected to attain the following
objectives:

Learning Competencies:
1. Explain the major role of financial management and the different
individuals involved (ABM_BF12-IIIa)
2. Distinguish a financial institution from financial instrument and financial
market (ABM_BF12-IIIa)

Subtasks:

1. Define finance.
2. Define financial institution, financial instrument and financial market.
3. Describe who are responsible for financial management within an
organization.
4. Distinguish a financial institution from financial instrument and financial
market.

LU_ Business Finance_Module 1

 Jumpstart

Activity 1. Read carefully each item and use separate sheet for your answers.
Write only the letter of the best answer for each test item.

1. It is a term for matters regarding the management, creation and study of

money.
A. Accounting
B. Budgeting
C. Finance
D. Liquidation

2. It is the division of finance that deals with how corporations deal with funding
sources, capital structure and investment decisions.
A. Behavioral Finance
B. Corporate Finance
C. Personal Finance
D. Stock Finance

3. It is a finance category that covers managing your money as well as saving

and investing.
A. Behavioral Finance
B. Corporate Finance
C. Personal Finance
D. Stock Finance

4. Who are responsible for the financial management in an organization?

A. CEO
B. Employees
C. Financial Managers
D. Sales Representative

5. Which of the following is a role of financial managers?

A. Communicating with the investors
B. Monitor employees of the company
C. Prepare the place where to start a business
D. Ensure the financial health of an organization

6. What type of financial manager directs the preparation of financial reports

that summarize and forecast the organizations’ financial position?
A. Collectors
B. Controllers
C. Creditors
D. Credit Managers

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 7. What skill of financial manager is shown when they explain and justify
complex financial transactions?
A. Analytical Skills
B. Communication Skills
C. Math Skills
D. Attention to detail

8. It is a skill of financial manager when he assists executives in making

decisions that affect the organization?
A. Analytical Skills
B. Communication Skills
C. Math Skills
D. Attention to detail

9. It is activity of a financial manager which involves the projected revenues and

expenditures?
A. Financing
B. Investment
C. Reporting
D. Financial Planning
10. What financial activity is shown in funding projects and securities that provide
high returns?
A. Financing
B. Investment
C. Reporting
D. Financial Planning

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 Discover

Have you ever tried to budget your money for a week or for a month? Have you
ever asked yourself how do companies and individuals acquire money needed such
as capital? All of this involved what we called finance.

Finance is a term for matters regarding the management, creation and study
of money and investments. Specifically, it deals with a term or broadly describing the
study and a system of money, investments and other financial instruments.

Finance can be broadly divided into three categories: a.) public finance,
b.) corporate finance and c.) personal finance.

a. Public Finance includes tax systems, government expenditures, budget

procedures stabilization policy and instruments, debt issues and other
government concerns.
b. Corporate Finance involves managing assets, liabilities, revenues and
debt for a business. Business obtain financing through a variety of
means ranging from equity investments to credit arrangements.
c. Personal Finance defines all financial decisions and activities of an
individual or household, including budgeting, insurance, mortgage
planning, savings, and retirement planning. Personal finance depends
largely on one's earnings, living requirements, and individual goal desire.
As a specialized field, personal finance is a recent development, through
the forms it has been taught in universities and school as “home
economics” or “consumer economics.”

The Financial Managers

The success of an operation of firms and markets can be achieved with the
help of the person involved in financing which is called financial managers.

Financial managers perform data analysis and advise senior managers on

profit- maximizing ideas. Financial managers are responsible for the financial health
of an organization. They produce financial reports, direct investment activities and
develop strategies and plans for the long-term financial goal of their organization.

There are two types of Financial manager; namely: a.) the controllers who
direct the preparation of financial reports and summarize and forecast the
organization’s financial position such as income statement and b.) credit managers
who oversee the firm’s credit business.

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 The Role of Financial Managers

The role of financial manager, particularly in business, is changing in

response to technological advances that have significantly reduced the amount it
takes to produce financial reports. Financial managers typically perform different
roles in the company such as:
• Prepare financial statements, business activity reports and forecasts
• Monitor financial details to ensure that the legal requirements are met
• Supervise employees who do financial reporting and budgeting
• Review company financial report and seek ways to reduce cost
• Analyze market trends to find opportunities for expansion or acquiring other
companies.
• Help management makes financial decision.

Important Skills for Financial Manager

Analytical Skills- Financial managers increasingly assist executives in

making decisions that affect the organization, a task for which they need analytical
ability.

Communication Skills- Excellent communication are needed to explain and

justify complex financial transactions.
Attention Detail- in preparing and analyzing report such as balance sheets
and income statements, financial manager must pay attention to detail.

Math Skills- Financial managers must be skilled in math including algebra.

An understanding of international finance and complex financial documents also is
important.

Organizational Skills- Financial managers deal with a range of information

and documents they must stay organized to do their jobs respectively.

Other Financial Managers

In Entrepreneurship, the entrepreneurs are the CEO; in Business
Management, they are called the Business managers; and in a company, they are
the different managers.

1. Board of Directors. They set policies on investment, capital structure and

dividends. They also approve the company’s strategies, goals, and budget
and appoint and remove members of the top management including
president. They determine top management’s compensation.
2. President. They are responsible for overseeing the operations of the
company and ensuring that the strategies as approved by the board are
implemented as planned. They perform all areas of management and
represent the company in professional, social, and civic activities.
3. VP for Sales and Marketing. They are responsible for formulating
marketing strategies and plan, directing and coordinating company sales
and performing market and competitor analysis. They are also involved in
analyzing and evaluating effectiveness and cost of marketing methods

LU_ Business Finance_Module 1

 applied, conducting or directing research and promoting good relationship
with customers and distributors.
4. VP for Production - Ensuring production meets demand and Identifying
production technology/process that minimizes production cost and makes
the company cost competitive is the main role of VP for production. They
are also responsible for coming up with a production plan and identifying
adequate and competitively priced raw products.
5. VP for Administration. The main role of VP for Administration is
coordinating the functions of administration, finance, sales and marketing
departments. VP for Administration assists in other departments in hiring
employees and provides assistance in payroll preparation.
6. VP for Finance- has the four following main role Financing, Investing,
operating and dividend policies.

What is Financial Instrument?

Financial instrument is the written legal obligation of one party to transfer
something of value-usually money to another party at some future date under certain
condition such as stocks, loans, or insurance. It is a monetary contract between
parties. Financial instrument serves as a means of payment (like money) store of
value (like money) allow for the trading of risk.

Examples: bank loans future contracts

bonds stocks
mortgages insurance

Financial Instrument can be divided into two types:

a. Cash Instrument. The values of cash instruments are directly influenced
and determined by the markets. It may also be deposits and loaned agreed
upon by borrowers and lenders.

b. Derivative Instrument. The value and characteristics are based on the

vehicles underlying components such as assets, interest rates or indices.
An equity option contract, for example is a derivative because it derives its
value from the underlying stock.

What is a Financial Institution?

Financial Institution is a company engaged in business of dealing with

financial and monetary transactions such as deposits loans, investments and
currency exchange. Financial institution encompasses a broad range of business
operations with in the financial services sector including banks, trust companies,
brokerage firms and investment dealers. Financial institution can vary by size scope
and geography.

Examples: Brokerage firms

Insurance companies
` Commercial and Investment bank

LU_ Business Finance_Module 1

 Types of a Financial Institutions
a. Commercial Bank – is a type of financial institution that accepts deposits,
offer checking account services, makes business, personal and mortgage
loans, and offer basic financial products like certificate of deposits and
saving account to individuals and small businesses. A commercial bank is
where people do their banking, as opposed to an investment bank.

b. Investment Banks – it specialized in providing services designed to

facilitate business operations such as capital expenditure financing and
equity offerings including initial public offerings (IPOs).

c. Insurance Companies – it is the most familiar non-bank financial

institutions. Providing insurance whether for individuals or corporations.

d. Brokerage Firms – investment companies and brokerages such as mutual

fund and exchange traded fund (ETF) provide investment services that
include wealth management and financial advisory services.

What is a Financial Market?

Financial Markets offer liquidity to borrowers and savers. Refer broadly to
any market place where the trading of securities occurs, including the stock market,
bond market, forex market and derivative market.

Types of Financial Markets

a. Over-the-counter Market – it is decentralized market meaning it

doesn’t have physical location and trading is conducted
electronically in which market participant trade securities directly
between two parties without a broker.

b. Bond Market – it sells securities such as notes and bills. A bond is

a security in which an investor loans money for a defined period at
a pre-established interest rate.

c. Money Market - trades in products with highly liquid, short-term

maturities and high degree of safety and a relatively low return in
interest. At the wholesale level, the money markets involved large
volume trades between institutions and traders. At the retail level,
they include money market mutual funds bought by individual
investors and money market accounts opened by bank customers.

d. Derivatives Market - trades in future and option contracts and

other advanced financial products that derive their value from
underlying instruments.

LU_ Business Finance_Module 1

 Explore

Activity 2. CROSSWORD PUZZLE

Directions. Fill in the crossword puzzle with the correct answers identified in
the statements below. Match the number of the question with the given boxes
placed across and down the grid. If answered correctly the words will fit neatly
into the puzzle. Write you answer in a separate sheet of paper.

4 6

ACROSS DOWN

1. Describes the study and the system of money, 2. It is a type of finance that
investments, and other financial instruments. defines all financial decisions and
3. Financial manger that directs preparation of activities of an individual.
financial reports 4. Financial managers who
5. Skills that need excellent communication which oversee the firm’s credit business.
are needed to explain and justify complex financial 6. Financial managers deal with a
transaction. range of information and
7. Skill that Financial manager must understand documents they must stay
mathematical concepts and ideas including algebra organized to do their jobs
respectively.

LU_ Business Finance_Module 1

 Deepen

Activity 3. CLASSIFY ME!

Directions. Classify the words below as financial instruments financial

institutions or financial market. Write your answers on the shapes assigned
to each classification. Use separate sheet of paper for your answer.

Commercial Bank Cash Mortgages

Stocks Brokerage Firms Bond Market
Bonds Insurance Companies
Investment Bank Over-the-counter Market
Money Market insurance

Financial Financial Financial

Instruments Institutions Markets

LU_ Business Finance_Module 1

 Gauge

Directions. Read and understand each question carefully. Write the letter of
your answer in a separate sheet of paper.

1. Which of the following is NOT a role of VP for Finance?

A. Financing B. Investing C. Production D. Operating

2. Which of the following is a role of a president?

A. Set policies on investment
B. Formulating marketing strategies
C. Ensuring production meets demand
D. Represent the company in civic activities

3. Which of the following is the main role of the VP for Production?

A. Set policies on investment
B. Formulating marketing strategies
C. Ensuring production meets demand
D. Represent the company in civic activities

4. Who is the person involved in data analysis and profit- maximizing ideas?
A. CEO
B. Department Heads
C. Finance Manager
D. Supervisors

5. What financial skill is shown in the statement “financial statement must focus on
details”?
A. Attention to detail
B. Communication Skills
C. Math skills
D. Organizational skills

6. What financial skill is shown in the statement “Excellent communication are

needed to explain”?
A. Attention to detail
B. Communication Skills
C. Math skills
D. Organizational skills

7. Which of the following is a responsibility of a financial manager?

A. Monitor financial details
B. Prepare financial statements
C. Help management make financial decision
D. All of the above
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 8. What aspects affects the role of financial manager?
A. Consumers B. Market C. Technology D. All of the above

9. When does finance arose?

A. 1940’s B. 1980’s C. 1990’s D. 2000 onwards

10. What type of financial manger directs the preparation and making of financial
reports?
A. Controllers
B. Credit Manager
C. Production Manager
D. Sales Manager

11. What do you call the monetary contract between parties?

A. Financial Instrument
B. Financial Institution
C. Financial Management
D. Financial Market

12. What type of financial institution accepts deposits?

A. Brokerage Firms
B. Commercial Bank
C. Insurance Companies
D. Investment Bank

13. What term refers broadly to any market place where the trading of securities
occurs?
A. Financial Instrument
B. Financial Institution
C. Financial Management
D. Financial Market

14. What type of financial market does not have physical locations, and trading is
conducted electronically?
A. Bond Market
B. Money Market
C. Over-the-counter
D. Stock Market

15. Which of the following is a Financial Institution?

A. Cash B. Savings Account
C. Land Bank of the Philippines D. Stock Market

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 LU_ Business Finance_Module 1
12
JUMPSTART: EXPLORE: DEEPEN:
1. A 1. FINANCE FINANCIAL INSTRUMENTS:
2. B 2. PEERSONAL 1. STOCKS
3. C 3. CONTROLLERS 2. BONDS
4. C 4. CREDITORS 3. CASH
5. D 5. COMMUNICATION 4. INSURANCE
6. B 6. ORGANIZATION 5. MORTGAGES
7. B 7. MATH FINANCIAL INSTITUTIONS:
8. A 1. COMMERCIAL BANK
9. C 2. INVESTMENT BANK
10. D 3. INSURANCE COMPANIES
4. BROKERAGE FIRMS
FINANCIAL MARKET:
1. MONEY MARKET
2. OVER-THE-COUNTER
MARKET
3. BOND MARKET
GAUGE:
1. C
2. D
3. C
4. C
5. A
6. B
7. D
8. D
9. A
10.A
11.A
12.B
13.D
14.C
15.C
Answer Key
 References

LINKS:

• Adam Hayes. June 7 2020. What is Finance? Retrieved July 24, 2020 from
https://www.investopedea.com/terms/f/finance.asp

• Roles of finance Mangers. Introduction to financial management. Retrieved

July 24, 2020 from https://courses.lumenlearning.com/boundless-
business/chapter/introduction-to-financial-management/

• Will Kenton. (2020 March 3). Financial Markets. Retrieved July 24, 2020
from https://www.investopedea.com/terms/f/financialmarket.asp

• Adam Hayes. April 21 2020. Financial Institutions. Retrieved July 24, 2020
from https://www.investopedea.com/terms/f/financialinstitution.asp

• Will Kenton. March 29 2020. Financial Markets Instrument. July 24, 2020
from https://www.investopedea.com/terms/f/financialinstrument.asp

• Will Kenton. March 3 2020. Financial Markets. Retrieved July 24, 2020
from www.slodeshare.net/mobile/athaullah9/financial-institutions-
instruments-and-markets

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 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriclum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
launion@deped.gov.ph
lrm.launion@deped.gov.ph

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LU_ Business Finance_Module 1