Bus finance

WHAT IS BUSINESS FINANCE?

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‎and management of funds needed to achieve. refers to the planning, acquisition, allocation, organizational objectives.

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‎Three fundamental questions:

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‎Investment decision:

‎Where should the business place its funds?

‎Financing decision:

‎Where should the business obtain funds?

‎Dividend or distribution decision:

‎How should profits be retained or distributed.

‎WHAT IS FINANCIAL ACTIVITIES?

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‎Refer to actions involving the acquisition, use, transfer, management, and investment of money.

These activities are performed by individuals, businesses, governments, and financial institutions.

SAVING

Involves setting aside part of current income for future use.

BORROWING-Occurs when government obtains funds from another party with an an individual, Dusiness, or agreement to repay the amount, usually with interest.

LENDING-occurs when one party provides funds to another party in expectation of repayment and possible interest income.

Major Financial Activities

Saving

Borrowing

Lending

Investing

Financing

Budgeting

Risk management

Payment and settlement

Role

BORROWING vs. LENDING

Goal

Receiver (debtor)

To get cash for growth. operations, or emergencies.

Giver (creditor)

To earn extra money through Interest

Cash Flow

Receiver (debtor)

Cash goes up now, but goes down later during repayment.

Giver (creditor)

Cash goes down now, but goes up later as it returns with interest.

Risk

Receiver (debtor)

Risk of failing to repay and losing collateral or damaging credit.

Giver (creditor)

Risk of the borrower not paying you back (default).

INVESTING-Involves using funds to acquire an asset or financial nstrument that may generate income or increase in alue.

FINANCING-Refers to obtaining funds for business operations, nvestments, or expansion.

RISK MANAGEMENT

Risk management involves identifying, measuring, and reducing possible financial losses.

PAYMENT AND SETTLEMENT

Payment and settlement refer to the transfer of money and completion of financial obligations.

Financial System

a network of institutions, markets, rules, and practices that allows money and credit to move among individuals, businesses, and governments

MAJOR COMPONENTS OF THE FINANCIAL SYSTEM

1. Financial Institutions

2. Financial Markets

3. Financial instruments

4. Rules and Regulations

How Does the Financial System Work?

Savers → Financial Institutions/Markets → Borrowers & Investors → Economic Activities