FINANCE? IS THE MANAGEMENT OF MONEY, BANKING, INVESTMENTS AND CREDIT.

Both an Art and a Science. Art because it is dynamic— changes overtime and science
because it is based on the factual information when making decisions.
AREAS OF FINANCE
BUSINESS FINANCE – IS TAKING CARE AND OVERSEEING OF MONEY RELATED
ASSETS OF A BUSINESS ORGANIZATION.
FINANCIAL MANAGEMENT -FOCUSES ON CAPITAL BUDGETING DECISIONS OR
INVESTMENT DECISIONS
CAPITAL MARKET -STUDIES THE DIFFERENT FINANCIAL INSTITUTIONS AND ITS
FUNCTIONS THAT CAN PROVIDE ASSISTANCE TO PRIVATE AND PUBLIC
BORROWERS OF FUNDS
FINANCIAL INVESTMENT -FOCUSES ON BUSINESS DECISIONS ABOUT THE VALUE
AND PRICE OF STOCKS AND BONDS
Shareholders – elect the Board of Directors
BOD – carry out the objective of the shareholders.
CEO – ensures that strategies approved by the board is implemented.
VP FOR MARKETING – formulates marketing strategies, directs company sales,
analyzes market and competitor.
VP FOR PRODUCTION- ensures that production meets customers’ demand.
VP FOR ADMINISTRATION – coordinates the functions of administration, finance and
marketing dept.
VP FOR FINANCE- manages the finances of the organization. Makes decisions for the
business.

CLASSIFICATIONS OF FINANCE
OFFICERS DECISION MAKING
1. OPERATING DECISIONS
2. INVESTING DECISIONS
3. FINANCING DECISIONS
QUALIFICATIONS OF A FINANCE OFFICER
1. He/She must have sound knowledge of accounting and economic concepts
and principles.
2. Understand the operation, statistic, and marketing research profoundly.
3. Possess good communication in both oral and written forms.
4. With impressive relationships with banks and other financial institutions
5. Good relationship within the business and other functional areas of the
company.
6. Obtain technical experience in finance and can provide professional
judgement.
7. Ethically and morally upright and socially responsible.
ROLE OF A FINANCE MANAGEMENT
1. Financial Decision and controls
2. Financial Planning
3. Capital Management
4. Allocation and Utilization of financial resources
5. Cash Flow Management
6. Disposal of Surplus
7. Financial Reporting
8. Risk Management

FINANCIAL SYSTEM
- CONTROLS, REGULATES AND FACILITATES THE SAVING, BORROWING, LENDING
AND INVESTING ACTIVITIES IN THE SYSTEM.
ELEMENTS OF A FINANCIAL SYSTEM
I. FINANCIAL INSTITUTIONS
- are organizations that provide financial services in the form of loans, credit, fund
administration, financing, depository and safekeeping.
A. Depository Institutions-accepts deposit, also extend loans to borrowers,
transfer funds and manage funds for investment purposes.
1. Bank – is an institution authorized to operate and regulated by BSP.
a. Universal Bank - the biggest bank, has a minimum capital
requirement of P20 billion pesos.
b. Commercial Bank – provides commercial loans and offers
investment products.
 c. Thrift Bank - savings and mortgage banks.
d. Rural Bank and Cooperative Bank – organized and operated in
rural areas, main targets are farmers.
e. Islamic Bank – created and organized that aims to promote the
ARMM’s socio-economic development.
2. Savings and Loan Association – a financing and mortgage loan
company.
3. Trust Company – acts as the custodian of the property for and in behalf
of the beneficiary for a fee.
4. Credit Union – controlled and operated by its members.
B. Financial Intermediaries – an institution that acts as a middleperson
between two parties: the investors and the borrowers.
1. Mutual Funds – a kind of investment that uses the money from
investors to invest in bonds, stocks.
2. Pension Funds – a retirement plan, a compulsory requirement of the
employer to make contribution for the benefit of the employee.
3. Insurance Companies – acts as financial intermediary by pooling
together the proceeds of insurance policies sold to the public.
C. Investments Institutions – engaged in buying securities of other companies
that are listed in the stock exchange for investment purposes only.

II. FINANCIAL MARKETS - the place where the activity of selling- buying takes place.
Trading activity is the term used in the selling-buying transactions in the financial
market.
A. Capital Market – is a financial market where stocks and bonds are issued for
medium- and long-term periods.
1. Primary Market – is a market where a company can issue new shares of
stock.
2. Secondary Market – a market where financial securities are traded
between or among investors.
B. Money Market – a market that trades financial securities that are highly liquid.
III. FINANCIAL INSTRUMENTS - a monetary contract between parties. One party
receives the financial assets, and the other is obliged to pay the financial asset.
A. Cash – this is an asset of the company, but in the government, it is a liability.
B. Check – financial asset of the lender or creditor but a financial liability of the issuer
or drawer.
C. Loan – is the lending of money, a financial asset of the lender and liability on the
part of the borrower.
D. Bonds – represents a contractual debt of the party issuing the bond, a financial
asset of the holder or investor and liability on the part of the issuing company.

TYPES OF BOND
1. Term Bond - A single bond that has a single maturity date
2. Serial Bond – A bond with a series of several maturity dates instead of single maturity.
3. Secured Bond – A bond that is secured by the issuing company. It can be in the form
of real property that serves as collateral in the event of the default on the part of the
bond issuer.
4. Debenture Bond – A bond is considered a debenture when it is not supported by any
collateral or security as assurance of non-payment or default.
5. Convertible bond – A bond that can be converted into a share of stocks at a later
date.
6. Callable bond – A callable bond is when the issuing company has the option to
redeem the bond prior to its maturity date.
E. Stocks – it is a type of investment that represents an ownership share in a company.

2 TYPES OF STOCK
1. Common stocks or ordinary shares – Holders of this kind of stocks do not have
preferences over each other. Holders of this stock also have the least priority on the
income of the corporation. Common stocks are voting stocks that include the right to
vote during the election of the board of directors and the right to subscribe for additional
shares to be issued. Common stockholders will benefit most income if the
2. Preferred stock or preference shares – A preferred shareholders have the advantage
over the company’s income, so they get to be paid for dividends first before common
shareholders. The privilege of a preferred stockholder is that they are preferred during
the distribution of earnings of dividends and net assets at the time of liquidation. But a
preferred holder doesn’t have voting rights.
What are the functions of Financial Managers?
1. Financing decisions- include making decisions as to how to finance long-term
investments and working capital-which deals with the day-to-day operations of the
company.
2. Investing Decisions- To minimize the probability of failure, long-term investments
have supported by a capital budgeting analysis.
3. Operating Decisions – deal with the daily operations of the company especially on
how to finance working capital accounts such as accounts receivable and inventories.
4. Dividend Policies – Dividend is a part of profits that are available for distribution, to
equity shareholders. The Finance manager must decide whether the firm should
distribute all the profits or retain them or distribute a portion and retain the balance.