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• Finance can be defined as the art and science of managing money.
• Finance is concerned with the process, institutions, markets, and

instruments involved in the transfer of money among individuals,
businesses, and governments Theater, environmental conservation, art,
hiking, skiing, travel
• Financial Services is the area of finance concerned with the design and
delivery of advice and financial products
• Career opportunities include banking, personal financial planning,
investments, real estate, and insurance
• Managerial finance is concerned with the duties of the financial manager in
the business firm.
• The financial manager actively manages the financial affairs of any type of
business, whether private or public, large or small, profit-seeking or not-for-
profit.
• They are also more involved in developing corporate strategy and improving
the firm’s competitive position
• Increasing globalization has complicated the financial management function
by requiring them to be proficient in managing cash flows in different
currencies and protecting against the risks inherent in international
transactions:
• function depends on the size of the firm
1. In small companies, the finance function may be performed by the company
president or accounting department.
2. As the business expands, finance typically evolves into a separate
department linked to the president
• The field of finance is actually an outgrowth of economics:
1. In fact, finance is sometimes referred to as financial economics.
2. Financial managers must understand the economic framework within which
they operate in order to react or anticipate to changes in conditions.
• The primary economic principal used by financial managers is marginal cost-
benefit analysis which says that financial decisions should be implemented
only when added benefits exceed added costs
• Maximize Shareholder Wealth: Because maximizing shareholder wealth
properly considers cash flows, the timing of these cash flows, and the risk of
these cash flows.
1. • This can be illustrated using the following simple stock valuation equation:
Share Price = Future Dividends/ Required Return
• What About Other Stakeholders? • Stakeholders include all groups of
individuals who have a direct economic link to the firm
• The "Stakeholder View" prescribes that the firm make a conscious effort to
avoid actions that could be detrimental to the wealth position of its
stakeholders
• Corporate Governance is the system used to direct and control a corporation.
• It defines the rights and responsibilities of key corporate participants
• The Sarbanes-Oxley Act of 2002 (commonly called SOX) eliminated many
disclosure and conflict of interest problems that surfaced during the early
2000s.
• Ethics is the standards of conduct or moral judgment.
• Robert A. Cooke, a noted ethicist, suggests that the following questions be
used to assess the ethical viability of a proposed action:
• – Does the action unfairly single out an individual or group?
• – Does the action affect the morals, or legal rights of any individual or group?
• – Does the action conform to accepted moral standards?
• – Are there alternative courses of action that are less likely to cause actual or
potential harm?
• Firms that require funds from external sources can obtain them in three
ways:
− – through a bank or other financial institution
− – through financial markets
− – through private placements
• Financial institutions are intermediaries that channel the savings of
individuals, businesses, and governments into loans or investments:
− The key suppliers and demanders of funds are individuals, businesses, and
governments.
− • In general, individuals are net suppliers of funds, while businesses and
governments are net demanders of funds
• securities are first issued through the primary market:
− The primary market is the only one in which a corporation or government is
directly involved in and receives the proceeds from the transaction.
− Once issued, securities then trade on the secondary markets such as the New
York Stock Exchange or NASDAQ
• The money market exists as a result of the interaction between the suppliers
and demanders of short-term funds (those having a maturity of a year or
less).
• Most money market transactions are made in marketable securities which
are short-term debt instruments such as T-bills and commercial paper.
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• Money market transactions can be executed directly or through an
intermediary
• The over-the-counter (OTC) :market is an intangible market for securities
transactions
• the OTC is both a primary market and a secondary market.
• The OTC is a computer-based market where dealers make a market in
selected securities and are linked to buyers and sellers through the NASDAQ
System.
• In the Eurobond market: corporations and governments typically issue
bonds denominated in dollars and sell them to investors located outside the
United States.
• The foreign bond market : is a market for foreign bonds, which are bonds
issued by a foreign corporation or government that is denominated in the
investor’s home currency and sold in the investor’s home market
• the international equity market allows corporations to sell blocks of
shares to investors in a number of different countries simultaneously.
• This market enables corporations to raise far larger amounts of capital than
they could raise in any single national market
• The income of sole proprietorships and partnerships is taxed as the income
of the individual owners, whereas corporate income is subject to corporate
taxes.
• Both individuals and businesses can earn two types of income:
1. ordinary income
2. capital gains income.
• Under current law, tax treatment of ordinary income and capital gains
income change frequently ; due frequently changing tax laws
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• Finance can be defined as the art and science of managing money.

• Finance is concerned with the process, institutions, markets, and

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