Fundamentals of Financial Management and Financial System

Vocabulary flashcards covering the core concepts of Business Finance, Areas of Finance, Financial Management, the Financial System, Financial Markets, Instruments, and Philippine Regulatory Bodies.

Accounting Equation

The fundamental accounting balance represented as $\text{Assets} = \text{Liabilities} + \text{Owner's Equity}$.

Double-Entry System

An accounting system in which every transaction affects at least two accounts to maintain balance.

Contra-Asset Account

An account that reduces the gross amount of a related asset account, such as accumulated depreciation.

Finance (Brigham & Ehrhardt)

Defined by Brigham and Ehrhardt (2017) as the art and science of managing money.

Finance (Gitman & Zutter)

Defined by Gitman and Zutter (2019) as the process, institutions, markets, and instruments involved in the transfer of money among individuals, businesses, and governments.

Private Finance

The management of financial resources of private individuals, non-governmental organizations, and private organizations in accordance with their prescribed financial policies and priorities.

Personal Finance

A branch of private finance that deals with managing income, expenses, savings, investments, and financial risks for individuals and families.

Business Finance

A branch of private finance focused on how companies acquire, manage, and utilize funds to achieve organizational objectives.

Public Finance

Also known as Fiscal Administration, it is the allocation of government income generated from taxation or borrowings and government expenditures based on an approved budget.

Areas of Finance Diagram

The structural categorization dividing finance into Private Finance (Personal and Business Finance) and Public Finance, with Business Finance encompassing Financial Management, Capital Market, and Financial Investment.

Financial Management

A specialized area of finance focusing on planning, organizing, directing, and controlling an organization's financial resources to ensure efficient use and value maximization.

Capital Market

A financial market where long-term funds are raised and traded between investors and organizations through financial securities.

Financial Investment

The allocation of funds into assets or securities with the expectation of earning future financial returns after evaluating risks and rewards.

Financial Manager

An individual responsible for planning, organizing, directing, and controlling an organization's financial resources to achieve goals while maintaining stability and profitability.

Operating Decision

A financial decision concerning the management of daily operations and resources to maintain efficiency and liquidity.

Investing Decision

A financial decision concerning the allocation of funds to long-term assets and projects to maximize future returns.

Financing Decision

A financial decision concerning how an organization obtains and raises the funds needed for operations and investments.

Financial System

A network of institutions, markets, instruments, and regulations that facilitates the transfer of funds between savers and borrowers.

Financial System Flow Diagram

An illustration showing how surplus cash from households and businesses moves as cash investments into financial institutions, which then provide cash loans to borrowers who make cash payments and returns.

Financial Institutions

Intermediaries that collect savings and provide financial services such as loans, deposits, investments, and fund management.

Depository Institutions

Financial institutions that accept deposits and extend loans, such as Commercial Banks, Rural Banks, Savings Banks, and Credit Cooperatives.

Financial Intermediaries

Institutions that channel funds from savers to borrowers, including Finance Companies, Insurance Companies, Pension Funds, Lending Companies, and Microfinance Institutions.

Investment Institutions

Entities that manage and invest funds to generate returns, such as Investment Banks, Mutual Funds, UITFs, and Asset Management Companies.

Financial Markets

Venues where buyers and sellers exchange financial assets such as stocks, bonds, currencies, and other securities.

Money Market

A financial market for trading short-term financial instruments such as Treasury bills and commercial papers.

Primary Market

A financial market where new securities are issued and sold for the first time, such as during an Initial Public Offering (IPO).

Secondary Market

A market where previously issued securities are traded among investors, such as stock exchange trading.

Public Market

An open financial market where securities are made accessible and available for trading by the general public.

Financial Instruments

Legal contracts or documents representing financial assets, liabilities, or equity ownership claims used to lend, borrow, invest, or manage risk.

Lenders

Individuals, households, businesses, or institutions that possess surplus funds available for lending or investment.

Borrowers

Individuals, businesses, or governments that require external funds to finance consumption, operations, or investments.

Bangko Sentral ng Pilipinas (BSP)

The central monetary authority of the Philippines responsible for maintaining price stability, controlling inflation, supervising banks, and issuing Philippine currency.

Securities and Exchange Commission (SEC)

The government agency in the Philippines that registers corporations and partnerships, regulates securities, and protects investors from fraud.

Insurance Commission (IC)

The government regulatory agency in the Philippines that supervises insurance companies, pre-need companies, and HMOs.

Bureau of Internal Revenue (BIR)

The Philippine government agency responsible for the assessment, collection, and enforcement of national internal taxes.

Philippine Deposit Insurance Corporation (PDIC)

A government institution in the Philippines that protects bank depositors by providing deposit insurance coverage and assisting in resolving failed banks.