CHAPTER ONE

1. AN OVERVIEW OF FINANCIAL MANAGEMENT

Introduction
Dear learners, in this chapter you will be introduced with an over view of Financial
Management. Basically Basic Assumptions and Principles of financial management, Scope of
financial management, Function of financial management, Goal of financial management,
Agency problem, Close related field of financial Management and Financial market and
corporations will be discussed.

Business firm needs finance to meet their requirements in the economic world. Any kind of
business activity depends on finance. Hence, it is called as lifeblood of business organization.
Whether the business firms are big or small, they need finance to fulfill their business activities.
In the modern world, all the activities are concerned with the economic activities and very
particular to earning profit through any venture or activities. The entire business activities are
directly related to making profit. (According to the economics concept of factors of production,
rent given to landlord, wage given to labor, interest given to capital and profit given to
shareholders or proprietors), a business firm needs finance to meet all the requirements. Hence
finance may be called as capital, investment, fund etc. Increasing the profit is the main aim of
any kind of economic activity.
Definition of Finance
Finance is the art and science of managing money or the word ‘finance’ connotes ‘management
of money’. In other words, finance can be defined as “the Science on study of the management
of funds’ and the management of fund as the system that includes the circulation of money, the
granting of credit, the making of investments, and the provision of banking facilities. It includes
financial service and financial instruments. Finance also is referred as the provision of money at
the time when it is needed. The concept of finance includes capital, funds, money, and amount.
Finance, in general, consists of three interrelated areas:
a) Money and capital markets, which deals with securities markets and financial institutions
b) Investments, which focus on the decision of individual and institutional investors and

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 c) Financial management or business finance; which involves the actual management of
business firms
Definition of Financial Management
Financial management is an integral part of overall management. It is concerned with the duties
of the financial managers in the business firm.
The term financial management has been defined by Solomon, “It is concerned with the efficient
use of an important economic resource namely, capital funds”.
The most popular and acceptable definition of financial management as given by S.C. Kuchalis
that “Financial Management deals with procurement of funds and their effective utilization in the
business”.
Howard and Upton: Financial management “as an application of general managerial principles
to the area of financial decision-making.
Joshep and Massie: Financial management “is the operational activity of a business that is
responsible for obtaining and effectively utilizing the funds necessary for efficient operations.
Thus, Financial Management is mainly concerned with the effective funds management in the
business. In simple words, Financial Management as practiced by business firms can be called as
Corporation Finance or Business Finance.
Business finance can broadly be defined as the activity concerned with planning, raising,
controlling, administering of the funds used in the business.
Corporate finance is concerned with budgeting, financial forecasting, cash management, credit
administration, investment analysis and fund procurement of the business firm and the business
firm needs to adopt modern technology and application suitable to the global environment.
1.1. The scope of financial management
Financial management is one of the important parts of overall management, which is directly
related with various functional departments like personnel, marketing and production. Financial
management covers wide area with multidimensional approaches. The following are the
important scope of financial management.
Financial Management and Economics
Economic concepts like micro and macroeconomics are directly applied with the financial
management approaches. Investment decisions, micro and macro environmental factors are
closely associated with the functions of financial manager. Financial management also uses the

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economic equations like money value discount factor, economic order quantity etc. Financial
economics is one of the emerging area, which provides immense opportunities to finance, and
economical areas.
Financial Management and Accounting
Accounting records includes the financial information of the business firm. Hence, we can easily
understand the relationship between the financial management and accounting. In the olden
periods, both financial management and accounting are treated as a same discipline and then it
has been merged as Management Accounting because this part is very much helpful to finance
manager to take decisions. But nowadays financial management and accounting discipline are
separate and interrelated.
Financial Management or Mathematics
Modern approaches of the financial management applied large number of mathematical and
statistical tools and techniques. They are also called as econometrics. Economic order quantity,
discount factor, time value of money, present value of money, cost of capital, capital structure
theories, dividend theories, ratio analysis and working capital analysis are used as mathematical
and statistical tools and techniques in the field of financial management.
Financial Management and Production Management
Production management is the operational part of the business firm, which helps to multiply
money into profit. Profit of the concern depends upon the production performance. Production
performance needs finance, because production department requires raw material, machinery,
wages, operating expenses etc. These expenditures are decided and estimated by the financial
department and the finance manager allocates the appropriate finance to production department.
The financial manager must be aware of the operational process and finance required for each
process of production activities.
Financial Management and Marketing
Produced goods are sold in the market with innovative and modern approaches. For this, the
marketing department needs finance to meet their requirements. The financial manager or
finance department is responsible to allocate the adequate finance to the marketing department.
Hence, marketing and financial management are interrelated and depends on each other.
Financial Management and Human Resource

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Financial management is also related with human resource department, which provides
manpower to all the functional areas of the management. Financial manager should carefully
evaluate the requirement of manpower to each department and allocate the finance to the human
resource department as wages, salary, remuneration, commission, bonus, pension and other
monetary benefits to the human resource department. Hence, financial management is directly
related with human resource management.
1.2. Importance of Financial Management
Each and every business firm must maintain adequate amount of finance for their smooth
running of the business firm and also maintain the business carefully to achieve the goal of the
business firm. The business goal can be achieved only with the help of effective management of
finance. We can’t neglect the importance of finance at any time and at any situation. Some of the
importance of the financial management is as follows:
(i) Financial Planning: Financial management helps to determine the financial requirement of
the business firm and leads to take financial planning of the concern. Financial planning is
an important part of the business firm, which helps to promotion of an enterprise.
(ii) Acquisition of Funds: Financial management involves the acquisition of required finance
to the business firm. Acquiring needed funds play a major part of the financial management,
which involve possible source of finance at minimum cost.
(iii) Proper Use of Funds: Proper use and allocation of funds leads to improve the
operational efficiency of the business firm. When the finance manager uses the funds
properly, they can reduce the cost of capital and increase the value of the firm.
(iv)Financial Decision: Financial management helps to take sound financial decision in the
business firm. Financial decision will affect the entire business operation of the concern.
Because there isa direct relationship with various department functions such as marketing,
production personnel, etc.
(v) Improve Profitability: Profitability of the concern purely depends on the effectiveness and
proper utilization of funds by the business firm. Financial management helps to improve the
profitability position of the concern with the help of strong financial control devices such as
budgetary control, ratio analysis and cost volume profit analysis.
(vi)Increase the Value of the Firm: Financial management is very important in the field of
increasing the wealth of the investors and the business firm. Ultimate aim of any business

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 firm will achieve the maximum profit and higher profitability leads to maximize the wealth
of the investors as well as the nation.
(vii) Promoting Savings: Savings are possible only when the business firm earns higher
profitability and maximizing wealth. Effective financial management helps to promoting
and mobilizing individual and corporate savings. Nowadays financial management is also
popularly known as business finance or corporate finances. The business firm or corporate
sectors cannot function without the importance of the financial management.

1.3. The objectives of financial management

The financial manager uses the overall company’s goal of shareholders’ wealth maximization,
which is reflected through the increased dividend per share, and the appreciations of the prices of
shares in formulating financial policies and evaluating alternative course of operation. In order to
do so, this overall goal of wealth maximization needs to be related to take the following specific
objectives of financial management into account. These are:
 Financial management aims at determining how large the business firm should be and how
fast should it grow.
 Financial management aims at determining the best percentage composition of the firm’s
assets (asset portfolio decision, of decisions related to capital uses).
 Financial management aims at determining the best percentage composition of the firm’s
combined liabilities and equity decisions related to capital sources.
Effective procurement and efficient use of finance lead to proper utilization of the finance by the
business firm. It is the essential part of the financial manager. Hence, the financial manager must
determine the basic objectives of the financial management. Objectives of Financial
Management may be broadly divided into two parts such as:
1. Profit maximization
2. Wealth maximization.
Profit Maximization
Main aim of any kind of economic activity is earning profit. A business firm is also functioning
mainly for the purpose of earning profit. Profit is the measuring techniques to understand the
business efficiency of the concern. Profit maximization is also the traditional and narrow

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approach, which aims at, maximizes the profit of the concern. Profit maximization consists of the
following important features.
1. Profit maximization is also called as cashing per share maximization. It leads to maximize
the business operation for profit maximization.
2. Ultimate aim of the business firm is earning profit; hence, it considers all the possible ways
to increase the profitability of the concern.
3. Profit is the parameter of measuring the efficiency of the business firm. So it shows the
entire position of the business firm.
4. Profit maximization objectives help to reduce the risk of the business.
Favorable Arguments for Profit Maximization
The following important points are in support of the profit maximization objectives of the
business firm:
(i) Main aim is earning profit.
(ii) Profit is the parameter of the business operation.
(iii) Profit reduces risk of the business firm.
(iv) Profit is the main source of finance.
(v) Profitability meets the social needs also.
Unfavorable Arguments for Profit Maximization
The following important points are against the objectives of profit maximization:
(i) Profit maximization leads to exploiting workers and consumers.
(ii) Profit maximization creates immoral practices such as corrupt practice, unfair trade
practice, etc.
(iii) Profit maximization objectives leads to inequalities among the share holders suchas
customers, suppliers, public shareholders, etc.
Drawbacks of Profit Maximization
Profit maximization objective consists of certain drawback also:
(i) It is vague: In this objective, profit is not defined precisely or correctly. It creates
some unnecessary opinion regarding earning habits of the business firm.
(ii) It ignores the time value of money: Profit maximization does not consider thetime
value of money or the net present value of the cash inflow. It leads certain differences
between the actual cash inflow and net present cash flow during particular period.

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 (iii) It ignores risk: Profit maximization does not consider risk of the business firm. Risks
may be internal or external which will affect the overall operation of the business
firm.
Wealth Maximization
Wealth maximization is one of the modern approaches, which involves latest innovations and
improvements in the field of the business firm. The term wealth means shareholder wealth or the
wealth of the persons those who are involved in the business firm. Wealth maximization is also
known as value maximization or net present worth maximization. This objective is a universally
accepted concept in the field of business.
Favorable Arguments for Wealth Maximization
(i) Wealth maximization is superior to the profit maximization because the main aim of
the business firm under this concept is to improve the value or wealth of the
shareholders.
(ii) Wealth maximization considers the comparison of the value to cost associated with
the business firm. Total value detected from the total cost incurred for the business
operation. It provides extract value of the business firm.
(iii) Wealth maximization considers both time and risk of the business firm.
(iv) Wealth maximization provides efficient allocation of resources.
(v) It ensures the economic interest of the society.
Unfavorable Arguments for Wealth Maximization
(i) Wealth maximization leads to prescriptive idea of the business firm but it may not be
suitable to present day business activities.
(ii) Wealth maximization is nothing, it is also profit maximization, it is the indirect name
of the profit maximization.
(iii) Wealth maximization creates ownership-management controversy.
(iv) Management alone enjoys certain benefits.
(v) The ultimate aim of the wealth maximization objectives is to maximize the profit.
(vi) Wealth maximization can be activated only with the help of the profitable positionof
the business firm.
1.4. Financial management decisions

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Financial management is basically concerned with three basic decisions. These are investment
decision, financing decision and dividend decision.
1. Investment decision
It is the most important decision of a company and is related with the amount and mix of assets
of a firm needed to be hold by the firm: i.e. the size of the firm. For example: how much of the
firms’ assets should be devoted to cash or to inventory? And so on.... In other words it is related
to the selection of the assets to invest the acquired fund of the firm. The assets to be acquired are
generally divided in to two:
(i) Short term assets: Refers to assets to be used or converted to cash without diminishing in
value within a year. The management of the list of those short term assets in financial
literature/context is called working capital management. Working capital management
involves:
a. The concept of working capital as a whole to maintain a balance between profitability
and solvency
b. Optimal balance of individual current asset
(ii) Long term assets: Refers to assets expected to give benefits for more than a year. The
decision on list of long term assets in financial literature/context is called capital budgeting
decision. Capital budgeting decision elements are
a) Composition or mix of long term assets
b) Risk involved
c) The concept and measurement of cost of capital
2. Financing Decision
It is the second important function to be performed by the financial manager. Broadly the
financial manager must decide when, where from and how to acquire funds to meet the firm’s
investment needs. It requires decision up on the capital mix or composition of source of finance:
debt or equity. The capital mix or composition of capital is called capital structure or financing
mix or leverage. Financing decision has two elements or aspects:
A. The theory of capital structure. It states that there is a relationship between the use of dept
and equity.
B. Determination of appropriate short term and long term sources of financing (appropriate
capital structure).

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3. Dividend Decisions
The dividend decision is determined based on the financing decision. The dividend policy of a
firm is determined by the “dividend pay-out ratio”. That is how much of the profit should be
distributed and how much should be retained for further investment activity of the firm. In
practice dividend is determined by:
1. Investment opportunities
2. Percentage of equity shareholders for dividend
Thus, dividend policy of a firm has two aspects:
1. The determination of dividends and
2. The factors that determine dividend
1.5. The role of financial managers
Financial Managers are persons, who are responsible in a significant way, to carry out the
finance function of a firm. Finance function is one of the major parts of business organization,
which involves the permanent and continuous process of the business firm. Finance is one of the
interrelated functions which deal with personal function, marketing function, production function
and research and development activities of the business firm. At present, every business firm
concentrates more on the field of finance because, it is a very emerging part which reflects the
entire operational and profit ability position of the concern. Deciding the proper financial
function is the essential and ultimate goal of the business organization.
Finance manager is one of the important role players in the field of finance function. He must
have entire knowledge in the area of accounting, finance, economics and management. His
position is highly critical and analytical to solve various problems related to finance. A person
who deals finance related activities may be called finance manager. Financial managers are
responsible to the whole financial activities of a firm such as, fund raising, fund allocation, profit
planning, understanding of capital markets and so on. Generally, finance manager performs the
following major functions:
a) Forecasting Financial Requirements
It is the primary function of the Finance Manager. He is responsible to estimate the financial
requirement of the business firm. He should estimate, how much finances required to acquire
fixed assets and forecast the amount needed to meet the working capital requirements in future.
b) Acquiring Necessary Capital

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After deciding the financial requirement, the finance manager should concentrate how the
finance is mobilized and where it will be available. It is also highly critical in nature.
c) Investment Decision
The finance manager must carefully select best investment alternatives and consider the
reasonable and stable return from the investment. He must be well versedin the field of capital
budgeting techniques to determine the effective utilization of investment. The finance manager
must concentrate to principles of safety, liquidity and profitability while investing capital.
d) Cash Management
Present day’s cash management plays a major role in the area of finance because proper cash
management is not only essential for effective utilization of cash butit also helps to meet the
short-term liquidity position of the concern.
e) Financial analysis and planning
(i) To convert the financial data in to financial information that used to monitor the
activities of a firm.
(ii) To evaluate the need to increase /decrease the investment of the firm.
(iii) To determine the need to increase/decrease financing.
f) Interrelation with Other Departments
Finance manager deals with various functional departments such as marketing, production,
personnel, system, research, development, etc. Finance manager should have sound knowledge
not only in finance related area but also well versed other areas. He must maintain a good
relationship with all the functional departments of the business organization.
1.6. Agency problem
Financial managers are charged with the responsibility of making decisions that maximize
owners’ wealth. For a corporation, that responsibility translates into maximizing the value of
shareholders’ equity. If the market for stocks is efficient, the value of a share of stock in a
corporation should reflect investors’ expectations regarding the future prospects of the
corporation. The value of a stock will change as investors’ expectations about the future change.
From this conflict of owner and personal goals arises what has been called the agency problem,
the likelihood that managers may place personal goals ahead of corporate goals. Two factors—
market forces and agency costs—serve to prevent or minimize agency problems.

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Costs of the Agency Relationship: There are costs involved with any effort to minimize the
potential for conflict between the principal’s interest and the agent’s interest. Such costs are
called agency costs, and they are of three types: monitoring costs, bonding costs, and residual
loss.
Monitoring costs are costs incurred by the principal to monitor or limit the actions of the agent.
In a corporation, shareholders may require managers to periodically report on their activities via
audited accounting statements, which are sent to shareholders. The accountants’ fees and the
management time lost in preparing such statements are monitoring costs. Another example is the
implicit cost incurred when shareholders limit the decision-making power of managers. By doing
so, the owners may miss profitable investment opportunities; the foregone profit is a monitoring
cost. The board of directors of corporation has a fiduciary duty to shareholders; that is the legal
responsibility to make decisions (or to see that decisions are made) that are in the best interests
of shareholders. Part of that responsibility is to ensure that managerial decisions are also in the
best interests of the shareholders. Therefore, at least part of the cost of having directors is a
monitoring cost.
Bonding costs are incurred by agents to assure principals that they will act in the principal’s best
interest. The name comes from the agent’s promise or bond to take certain actions. A manager
may enter into a contract that requires him or her to stay on with the firm even though another
company acquires it; an implicit cost is then incurred by the manager, who foregoes other
employment opportunities. Even when monitoring and bonding devices are used, there may be
some divergence between the interests of principals and those of agents. The resulting cost,
called the residual loss, is the implicit cost that results because the principal’s and the agent’s
interests cannot be perfectly aligned even when monitoring and bonding costs are incurred.
Motivating Managers: Executive Compensation One way to encourage management to act in
shareholders’ best interests, and so minimize agency problems and costs, is through executive
compensation—how top management is paid. There are several different ways to compensate
executives, including:
 Salary. The direct payment of cash of a fixed amount per period. Bonus. A cash reward
based on some performance measure, say earnings of a division or the company. Stock
appreciation right.

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  A cash payment based on the amount by which the value of a specified number of shares
has increased over a specific period of time (supposedly due to the efforts of
management).
 Performance shares. Shares of stock given the employees, in an amount based on some
measure of operating performance, such as earnings per share.
 Stock option. The right to buy a specific number of shares of stock in the company at a
stated price—referred to as an exercise price at some time in the future. The exercise
price may be above, at, or below the current market price of the stock.
 Restricted stock grant. The grant of shares of stock to the employee at low or no cost,
conditional on the shares not being sold for a specific time.
1.7. Financial market and corporations
The Primary Objective of the Corporation
Shareholders are the owners of a corporation, and they purchase stocks because they want to earn
a good return on their investment without undue risk exposure.
In most cases, shareholders elect directors, who then hire managers to run the corporation on a
day-to-day basis. Because managers are supposed to be working on behalf of share holders, it
follows that they should pursue policies that enhance shareholder value.
Management’s primary objective is stockholder wealth maximization, which translates into
maximizing the price of the firm’s common stock. Firms do, of course, have other objectives in
particular; the managers who make the actual decisions are interested in their own personal
satisfaction, in their employees’ welfare, and in the good of the community and of society at
large. Still, for the reasons set forth in the following sections, stock price maximization is the
most important objective for most corporations.
Stock Price Maximization and Social Welfare
Maximize stock prices also benefit society. Here are some of the reasons:
 To a large extent, the owners of stock are society.
 Consumer’s benefit Stock price maximization requires efficient, low-cost businesses that
produce high-quality goods and services at the lowest possible cost. This means that
companies must develop products and services that consumers want and need, which
leads to new technology and new products.

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  Employee’s benefit. There are cases in which a stock increases when a company
announces a plan to lay off employees, but viewed over time this is the exception rather
than the rule. In general, companies that successfully increase stock prices also grow and
add more employees, thus benefiting society.
Managerial Actions to Maximize Shareholder Wealth
What types of actions can managers take to maximize a firm’s stock price?
 Any financial asset, including a company’s stock, is valuable only to the extent that it
generates cash flows;
 The timing of cash flows matters—cash received sooner is better, because it can be
reinvested in the company to produce additional income or else be returned to investors;
and
 Investors generally are averse to risk.
The three primary determinants of cash flows are (1) unit sales, (2) after-tax operating margins,
and (3) capital requirements.
The first factor has two parts, the current level of sales and their expected future growth rate.
Managers can increase sales, hence cash flows, by truly understanding their customers and then
providing the goods and services that customer’s want. Some companies may luck into a
situation that creates rapid sales growth, but the unfortunate reality is that market saturation and
competition will, in the long term, because their sales growth rate to decline to a level that is
limited by population growth and inflation. Therefore, managers must constantly strive to create
new products, services, and brand identities that cannot be easily replicated by competitors, and
thus to extend the period of high growth for as long as possible.
The second determinant of cash flows is the amount of after-tax profit that the company can keep
after it has paid its employees and suppliers. One possible way to increase operating profit is to
charge higher prices. However, in a competitive economy such as USA, higher prices can be
charged only for products that meet the needs of customers better than competitors’ products.
The third factor affecting cash flows is the amount of money a company must invest in plant and
equipment. In short, it takes cash to create cash. For example, as a part of their normal
operations, most companies must invest in inventory, machines, buildings, and so forth. But each
dollar tied up in operating assets is a dollar that the company must “rent” from investors and pay
for by paying interest or dividends.

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Therefore, reducing asset requirements tends to increase cash flows, which increases the stock
price. For example, companies that successfully implement just-in-time inventory systems
generally increase their cash flows, because they have less cash tied up in inventory.
Real assts Vs Financial asset
All assets used in the production and sales of firm’s product or service are called real asset. Real
assets can be classified into tangible (building) and intangible (patent and goodwill) real assets.
On the other hand, financial assets are claims to the real asset and return generated by those real
assets. Financial assets are the representative of real assets in the economy
The Financial Markets
Businesses, individuals, and governments often need to raise capital.
People and organizations who want to borrow money are brought together with those with
surplus funds in the financial markets. Note that “markets” is plural—there are a great many
different financial markets in a developed economy such as USA. Each market deals with a
somewhat different type of instrument in terms of the instrument’s maturity and the assets
backing it. Also, different markets serve different types of customers, or operate in different parts
of the country. Here are some of the major types of markets:
Types of Markets
1. Physical asset markets (also called “tangible” or “real” asset markets) are those for such
products as wheat, autos, real estate, computers, and machinery.
2. Financial asset markets, on the other hand, deal with stocks, bonds, notes, mortgages,
and other financial instruments. All of these instruments are simply pieces of paper with
contractual provisions that entitle their owners to specific rights and claims on real assets
3. Money markets are the markets for short-term, highly liquid debt securities.
4. Capital markets are the markets for intermediate- or long-term debt and corporate stocks
(1year to 5 intermediate otherwise long.
5. Mortgage markets deal with loans on residential, commercial, and industrial real estate,
and on farmland, while consumer credit markets involve loans on autos and appliances,
as well as loans for education, vacations, and so on.
6. Primary markets are the markets in which corporations raise new capital. If Micro- soft
were to sell a new issue of common stock to raise capital, this would be a primary market
transaction. The corporation selling the newly created stock receives the proceeds from

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 the sale in a primary market transaction. The initial public offering (IPO) market is a
subset of the primary market. Here firms “go public” by offering shares to the public for
the first time.
7. Secondary markets are markets in which existing, already outstanding, securities are
traded among investors. Thus, if Jane Doe decided to buy 1,000 shares of AT&T stock,
the purchase would occur in the secondary market. The New York Stock Exchange is a
secondary market, since it deals in outstanding, as opposed to newly issued, stocks.
Secondary markets also exist for bonds, mortgages, and other financial assets. The
corporation whose securities are being traded is not involved in a secondary market
transaction and, thus, does not receive any funds from such a sale.
Types of Financial Intermidiaries
 Commercial banks, commercial banks were the major institutions that handled checking
accounts and through which the Federal Reserve System expanded or contracted the
money supply.
 Savings and loan associations: which have traditionally served individual savers and
residential and commercial mortgage borrowers, take the funds of many small savers and
then lend this money to home buyers and other types of borrowers.
 Mutual savings banks, accept savings primarily from individuals, and lend mainly on a
long-term basis to home buyers and consumers
 Credit unions are cooperative associations whose members are supposed to have a
common bond, such as being employees of the same firm. Members’ savings are loaned
only to other members, generally for auto purchases, home improvement loans, and home
mortgages. Credit unions are often the cheapest source of funds
 Life insurance companies take savings in the form of premiums; invest these funds in
stocks, bonds, real estate, and mortgages; and finally make payments to the beneficiaries
of the insured parties.
 Mutual funds are corporations that accept money from savers and then use these funds
to buy stocks, long-term bonds, or short-term debt instruments issued by businesses or
government units.

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  Pension funds are retirement plans funded by corporations or government agencies for
their workers and administered generally by the trust departments of commercial banks or
by life insurance companies.
The Stock Market
The two leading stock markets today are the New York Stock Exchange and the Nasdaq stock
market.
The New York Stock Exchange (NYSE) is a physical location exchange. It occupies its own
building, has a limited number of members, and has an elected governing body its board of
governors. Members are said to have “seats” on the exchange, although everybody stands up.
These seats, which are bought and sold, give the holder the right to trade on the exchange. There
are currently 1,366 seats on the NYSE.
The National Association of Securities Dealers (NASD) is a self-regulatory body that licenses
brokers and oversees trading practices. The computerized network used by the NASD is known
as the NASD Automated Quotation System, or Nasdaq. Nasdaq started as just a quotation
system, but it has grown to become an organized securities market with its own listing
requirements. Nasdaq lists about 5,000 stocks, although not all trade through the same Nasdaq
system.

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