Financial Intermediaries PDF

POINTERS TO REVIEW TYPES OF EXAM: Identifications True or False Creativity -​ Understand the TYPES OF FINANCIAL INTERMEDIARIES Bank - licensed to accept deposits from the public and create credit products for borrowers. Credit union - member-owned, it operates on the principle of helping memb...

POINTERS TO REVIEW TYPES OF EXAM: Identifications True or False Creativity -​ Understand the TYPES OF FINANCIAL INTERMEDIARIES Bank - licensed to accept deposits from the public and create credit products for borrowers. Credit union - member-owned, it operates on the principle of helping members access credit at competitive rates. Mutual funds - Pool savings from individual investors, managed by fund managers who identify investments with the potential of earning a high rate of return and who allocate the shareholders' funds to the various investments. Financial advisors provides financial services to clients Financial Institutions exist to provide a wide variety of deposit, lending and investment products to individuals, businesses or both. While some financial institutions focus on providing services and accounts for the general public, others are more likely to serve only certain consumers with more specialized offerings.. Types of Financial Institutions Central Banks Retail and Commercial Banks Internet Banks Mortgage Companies Credit Unions Savings and Loan Associations Investment Banks and Companies Brokerage Firms Insurance Companies -​ Function of financial Manager 1. Estimating the requirements of funds -​ A careful estimate of funds like working capital (day to day operation) is required to be made. -​ Forecasting the requirements of funds through the use of techniques of BUDGETARY CONTROL, (managing income and expenditure) and long range planning.  2. Decision regarding Capital Structure - Capital Structure - combination of debt (loan) and equity (own funds) used by a company to finance its overall operations and growth. 3. Investment decisions - Funds procured from different sources have to be invested in various kinds of assets. 4. Divedend decision - The Finance Manager is concerned with the decision to pay or declare dividend (a share of profits and retained earnings). - He/She is to assist the top Management in deciding as to what amount of dividend should be paid to the shareholders and what amount be retained by the company. 5. Supply of funds to all parts of the organization or Cash Management. - ensure that all sections i.e branches, factories, units or departments of the organization are supplied with adequate funds or an adequate supply of cash at all points of time. 6. Evaluating Financial performance - constantly review the financial performance of various units of the organization. -analysis of financial performance helps the management for assessing how the funds are utilized in various divisions and what can be done to improve it. 7. Financial negotiations - carrying out negotiations with financial institutions, banks and public depositors. -​ Investment decisions - Funds procured from different sources have to be invested in various kinds of assets. -​ Divedend decision - The Finance Manager is concerned with the decision to pay or declare dividend (a share of profits and retained earnings).  - He/She is to assist the top Management in deciding as to what amount of dividend should be paid to the shareholders and what amount be retained by the company. -​ Corporate Financial Planning - preparation of budget and forecasted financial reports to decide the most effective ways to maximize wealth, given all the internal and external factors in the business environment -​ Sales Forecast - the amount of money that businesses predict they will receive from sales ( Basis of Budget) Sale forecast - sales budget - operating budget - production - budget - cash budget -​ Spreading Risk - provide a platform where individuals with surplus cash can spread their risk by lending to several people rather than to only one individual. -​ Bank - licensed to accept deposits from the public and create credit products for borrowers -​ Finance- as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. -​ Corporate Finance or Business Finance - Deals with the capital structure ofa corporation, including it’s funding and the actions that management takes to increase the value of the company. 1. What long-term investments should the firm undertake? (Capital Budgeting decisions) 2. How should the firm fund these Investments? (Capital Structure decisions) 3. How can the firm best manage its cash flows as they arise its day-to-day Operations? (Working Capital Management Decisions) -​ Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise -​ Cost Projection - shows information on past and present financial investments focusing on the development, implementation, and maintenance of project operations -​ Break-Even Analysis- shows which conditions would make total revenue enough to cover the total expenses of a firm finds opportunities to increase income while decreasing total costs -​ Business Plan - a comprehensive written document that summarizes the past, present, and future situation of a business guides the direction of financial planning -​ Stock Market - Trades shares of ownership of public companies, each shared comes with a price and investors make money with stocks when they perform well in the market -​ DERIVATIVE INSTRUMENTS have values determines from underlying assets, such as resources, currency,bonds, stocks and stock indexes. Forward Future Options Interest Rate Swap -​ Sales Budget- involves realistic projections of the company's sales revenue and expenses estimates earnings and foresee production requirements