Table of Contents

Introduction of Financial Management

Meaning of Financial Management

For a business entrepreneur, knowing the meaning of Financial Management is important because it is the efficient and effective management of money or funds in such a manner as to accomplish the objective of the organization. It is the specialized function directly associated with the top management. The significance of this function is not only seen in the 'Line' but also in the capacity of 'Staff' in overall administration of a company. It has been defined differently by different experts in the field.It includes the following:1. How to raise a capital.2. How to allocated it i.e capital budgeting. Not only about long term budgeting but also how to allocated the short term resources like current assets.3. It also deals with the dividend policies of the office holders.In other sources the Financial Management is defined as:Financial Management is the Operational Activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operation. - Joseph MassieBusiness finance deals primarily with rising administering and disbursing funds by privately owned business units operating in non-financial fields of industry. Prather and WertFinancial Management is an area of financial decision making, harmonizing individual motives and enterprise goals.- Weston and BrighamFinancial management is the area of business management devoted to a judicious use of capital and a careful selection of sources of capital in order to enable a business firm to move in the direction of reaching its goals. J.F.BradleryFinancial management is the application of the planning and control function to the finance function. Archer & AmbrosioFinancial management may be defined as that area or set of administrative function in an organization which relate with arrangement of cash and credit so that organization may have the means to carry out its objective as satisfactorily as possible . - Howard & Opton.Business finance can be broadly defined as the activity concerned with planning, raising, controlling and administering of funds and in the business. - H.G Gathman & H.E Dougall

Its topic includes: Managerial finance, a branch of finance concerned with the managerial significance of finance techniques. Corporate finance, a branch of finance concerned with monetary resource allocations made by corporations. Financial management for IT services, financial management of IT assets and resources. Financial Management Association, an organization for finance and economics students and professionals. Financial Management Service, a bureau of the U.S. Treasury which provides financial services for the government. Financial management, a professional designation in Canada indicating a financial planner.

Chapter IBank Savings Accounts1.1 Meaning of Bank Saving Accounts Saving accounts(also called passbooks) are the accounts maintained by retail financial institutions that pay interest but cannot be used directly as money in the narrow sense of a medium of exchange (for example, by writing a cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. For the bank, money in a savings account may not be callable immediately and in some jurisdictions, does not incur a reserve requirement, freeing up cash from the bank's vault to be lent out with interest.The other major types of deposit account are transactional account (checking account or current account by country), money market account, and time deposit.

To further explain here are some basic questions connected to Bank Saving Account:What is A Savings Account?A savings account or passbook savings allows you to save money while being able to enjoy the flexibility it offers since it is available on demand with any withdrawal restrictions like being able to withdraw a specific amount. Banks offer savings accounts in different currencies in the Philippines. Peso and dollar saving accounts are most popular.How to find the Savings Account Best Interest Rate?It can be quite confusing finding the right savings account for your personal needs. Is Having A Savings Account Enough?No. The savings account is just actually there as a source of immediate money in times that you will need like an emergency, or could be used to buy assets or investments. Nowadays, having just savings in the bank wouldn't put you through retirement and honestly, inflation beats out saving accounts interest rates any day. 1.2 Interest Rate We frequently hear the word 'interest Rate', first we define it and study its importance in the world of business.Interest Rate is the rate at which interest is paid by a borrower (debtor) for the use of money that they borrow from an lender (creditor). Specifically, the interest rate (I/m) is a percent of principal (P) paid a certain amount of times (m) per period (usually quoted per annum). For example, a small company borrows capital from a bank to buy new assets for its business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower. Interest rates are normally expressed as a percentage of the principal for a period of one year.Importance of Interest Rate:Interest-rate targets are a vital tool of monetary policy and are taken into account when dealing with variables like investment, inflation, and unemployment. The central banks of countries generally tend to reduce interest rates when they wish to increase investment and consumption in the country's economy. However, a low interest rate as a macro-economic policy can be risky and may lead to the creation of an economic bubble, in which large amounts of investments are poured into the real-estate market and stock market.

1.2 Regular Savings: A regular savings account is an account at a bank that pays interest on the deposits within the account. Not to be confused with a Certificate of Deposit, a regular savings account is completely liquid and funds can be withdrawn from the account at any time without penalty. Although a regular savings account has no check writing privileges, it has become common practice for banks to link a customer's regular savings account to the customer's checking account as a method of overdraft protection. Regular savings accounts are characterized by lower interest rates and thus lower balances than other, less liquid bank products.

Chapter IIBank Time Deposits

2.1 Meaning of Bank Time DepositsA time deposit (also known as a certificate of deposit in the United States, a term deposit, particularly in Canada, Australia and New Zealand; a bond in the United Kingdom; Fixed Deposits in India and in some other countries) is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time (unless a penalty is paid). When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the term the better the yield on the money. In its strict sense, certificate deposit is different from that of time deposit in terms of its negotiability: CDs are negotiable and can be rediscounted when the holder needs some liquidity, while time deposits must be kept until maturity.The opposite, sometimes known as a sight deposit or "on call" deposit, can be withdrawn at any time, without any notice or penalty: e.g., money deposited in a checking account in a bank.The rate of return is higher than for savings accounts because the requirement that the deposit be held for a pre-specified term gives the bank the ability to invest it in a higher-gain financial product class. However, the return on a time deposit is generally lower than the long-term average of that of investments in riskier products like stocks or bonds.A time deposit is an interest-bearing bank deposit that has a specified date of maturity. A deposit of funds in a savings institution is made under an agreement stipulating that (a) the funds must be kept on deposit for a stated period of time, or (b) the institution may require a minimum period of notification before a withdrawal is made

Other Meaning of Time Deposit:A savings account or certificate of deposit (CD) held for a fixed-term, with the understanding that the depositor can make a withdrawal only by giving notice. A time deposit is an interest-bearing bank deposit that has a specified date of maturity. A bank is authorized to require depositors to give 30 days notice before withdrawing funds from a savings account; however, passbook accounts are typically considered readily available funds and account holders can make withdrawals without giving advance notice. Certificates of deposit are issued for a specified term, such as 30 days (the minimum) up to five years. Although funds can be withdrawn from CDs without notice (on demand), there are penalties for early withdrawal.2.2 Interest on Short TermThese are the Interest rates onloancontracts-or debt instruments such as Treasury bills, bank certificates of deposit or commercial paper-having maturities of less than one year. They are often called money market rates.

2.3 Interest on Long TermLong Term Interest is the interest rate earned by a note or bond having a maturity of ten or more years.Long-term interest rates

Per cent per annum

2012201320132014

NovDecJanFebMarApr

Australia3.383.704.134.244.184.124.104.03

Austria2.372.012.082.172.131.951.87..

Belgium2.962.372.492.462.472.272.192.16

Canada1.872.262.562.672.532.422.452.44

Chile5.485.354.965.145.065.00....

Czech Republic2.782.112.182.202.432.282.20..

Denmark1.401.751.801.891.861.671.61..

Estonia................

Finland1.881.861.942.031.991.921.901.84

France2.542.202.272.332.382.252.152.03

Germany1.501.571.681.801.761.561.511.46

Greece22.5010.058.418.668.187.706.90..

Hungary7.895.925.825.785.606.035.835.56

Iceland6.195.796.206.386.336.586.286.23

Ireland5.993.833.533.473.313.103.01..

Israel14.403.803.603.583.673.633.403.39

Italy5.494.324.104.113.873.653.403.23

Japan0.840.690.610.690.610.590.61..

Korea3.453.283.583.653.653.523.54..

Luxembourg1.831.741.791.861.831.651.58..

Mexico......6.336.46..6.326.15

Netherlands1.931.962.062.162.091.891.811.85

New Zealand3.694.094.704.764.644.574.584.55

Norway2.102.582.862.942.952.852.942.88

Poland5.004.034.384.424.424.474.254.10

Portugal10.556.295.986.045.214.94....

Slovak Republic4.553.193.152.692.532.482.47..

Slovenia5.815.815.915.274.734.433.85..

Spain5.854.564.114.143.783.563.313.10

Sweden1.592.122.302.392.372.232.162.06

Switzerland0.650.951.031.250.980.950.95..

United Kingdom1.912.452.753.093.072.962.812.74

United States1.802.352.722.902.862.712.722.71

Euro Area3.053.013.173.313.213.092.892.61

Russian Federation8.157.337.657.777.917.808.17..

South Africa7.907.728.188.328.488.678.52..

Last updated:13 May 2014;disclaimer:http://oe.cd/disclaimer

Chapter IIIOther Products and their Corresponding Rates

Introduction

The product is the firm's reason for being. all firms (including banks) are in the business of satisfyingn customer needs, and they do this through their product. a firm that does not deliver a need-satisfying products has no reason to exist. Philip Kotler proposes the following definition: " A product is anything that can be offered to satisfy a need or want" . Offering and solution are synonymous to the productin marketing context.A product of offering can consist of as many as three components: physical good(s), service(s), and idea(s).Also, Philip Kotler distinguished three components:- need: a lack of basic requirement- want: a specific requirement for products or services to match a need- demand: a set of wants plus thedesire and ability to pay for the exchangeThere are Two Classifications of Bank Products: Retail banking Business (or commercial/investment) banking

3.1 Retail Banking Retail banking is when a bank executes transactions directly with consumers, rather than corporations or other banks. Services offered include savings and transactional accounts, mortgages, personal loans, debit cards, and credit cards. The term is generally used to distinguish these banking services from investment banking, commercial banking or wholesale banking. It may also be used to refer to a division of a bank dealing with retail customers and can also be termed as Personal Banking services.Products:1. Checking Account - A transactional account, known as a current account (British English) or checking account (American English) is a deposit account held at a bank or other financial institution, for the purpose of securely and quickly providing frequent access to funds on demand, through a variety of different channels. Transactional accounts are meant neither for the purpose of earning interest nor for the purpose of savings, but for convenience of the business or personal client; hence do they tend not to bear interest. Instead, a customer can deposit or withdraw any amount of money any number of times, subject to availability of funds.2. Saving accounts- are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money in the narrow sense of a medium of exchange (for example, by writing a cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. For the bank, money in a savings account may not be callable immediately and in some jurisdictions, does not incur a reserve requirement, freeing up cash from the bank's vault to be lent out with interest.3. A money market account (MMA) or money market deposit account (MMDA) - is a financial account that pays interest based on current interest rates in the money markets.4. A certificate of deposit (CD) is a time deposit, a financial product commonly sold in the United States by banks, thrift institutions, and credit unions.

5. CDs- are similar to savings accounts in that they are insured and thus virtually risk-free; they are "money in the bank". In the USA, CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union Administration (NCUA) for credit unions. They are different from savings accounts in that the CD has a specific, fixed term (often monthly, three months, six months, or one to five years), and, usually, a fixed interest rate. It is intended that the CD be held until maturity, at which time the money may be withdrawn together with the accrued interest.6. An Individual Retirement Account - is a form of "individual retirement plan", provided by many financial institutions, that provides tax advantages for retirement savings in the United States. An individual retirement account is a type of "individual retirement arrangement" as described in IRS Publication 590, Individual Retirement Arrangements (IRAs). The term IRA, used to describe both individual retirement accounts and the broader category of individual retirement arrangements, encompasses an individual retirement account; a trust or custodial account set up for the exclusive benefit of taxpayers or their beneficiaries; and an individual retirement annuity, by which the taxpayers purchase an annuity contract or an endowment contract from a life insurance company.7. A credit card is a payment card issued to users as a system of payment. It allows the cardholder to pay for goods and services based on the holder's promise to pay for them.[1] The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.8. A credit card is different from a charge card: a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date.

9. A debit card (also known as a bank card or check card) is a plastic payment card that provides the cardholder electronic access to his or her bank account(s) at a financial institution. Some cards have a stored value with which a payment is made, while most relay a message to the cardholder's bank to withdraw funds from a payer's designated bank account. The card, where accepted, can be used instead of cash when making purchases. In some cases, the primary account number is assigned exclusively for use on the Internet and there is no physical card.In many countries, the use of debit cards has become so widespread that their volume has overtaken or entirely replaced cheques and, in some instances, cash transactions. The development of debit cards, unlike credit cards and charge cards, has generally been country specific resulting in a number of different systems around the world, which were often incompatible. Since the mid-2000s, a number of initiatives have allowed debit cards issued in one country to be used in other countries and allowed their use for internet and phone purchases.10. Mortgage loan, also referred to as a mortgage, is used by purchasers of real property to raise money to buy the property to be purchased or by existing property owners to raise funds for any purpose. The loan is "secured" on the borrower's property. This means that a legal mechanism is put in place which allows the lender to take possession and sell the secured property ("foreclosure" or "repossession") to pay off the loan in the event that the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a "law French" term used by English lawyers in the middle ages meaning "death pledge", and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. Mortgage borrowers can be individuals mortgaging their home or they can be businesses mortgaging commercial property (for example, their own business premises, residential property let to tenants or an investment portfolio). The lender will typically be a financial institution, such as a bank, credit union or building society, depending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably. The lender's rights over the secured property take priority over the borrower's other creditors which means that if the borrower becomes bankrupt or insolvent the other creditors will only be repaid the debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first.11. A mutual fund is a type of professionally managed collective investment scheme that pools money from many investors to purchase securities. While there is no legal definition of the term "mutual fund", it is most commonly applied only to those collective investment vehicles that are regulated and sold to the general public. They are sometimes referred to as "investment companies" or "registered investment companies." Most mutual funds are "open-ended," meaning stockholders can buy or sell shares of the fund at any time. Hedge funds are not considered a type of mutual fund.12. Unsecured debt- refers to any type of debt or general obligation that is not collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment.13. Time deposit (also known as a certificate of deposit in the United States, a term deposit, particularly in Canada, Australia and New Zealand; a bond in the United Kingdom; Fixed Deposits in India and in some other countries) is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time (unless a penalty is paid). When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the term the better the yield on the money. In its strict sense, certificate deposit is different from that of time deposit in terms of its negotiability: CDs are negotiable and can be rediscounted when the holder needs some liquidity, while time deposits must be kept until maturity.14. ATM card (also known as a bank card, client card, key card, or cash card)- is a payment card provided by a financial institution to its customers which enables the customer to use an automated teller machine (ATM) for transactions such as: deposits, cash withdrawals, obtaining account information, and other types of banking transactions, often through interbank networks.15. Transactional account, known as a current account (British English) or checking account (American English), is a deposit account held at a bank or other financial institution, for the purpose of securely and quickly providing frequent access to funds on demand, through a variety of different channels.Transactional accounts are meant neither for the purpose of earning interest nor for the purpose of savings, but for convenience of the business or personal client; hence do they tend not to bear interest. Instead, a customer can deposit or withdraw any amount of money any number of times, subject to availability of funds.

16. Cheque Books

3.2 Business (or commercial/investment) banking

1. Loan is a debt provided by one entity (organization or individual) to another entity at an interest rate, and evidenced by a note which specifies, among other things, the principal amount, interest rate, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower.In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount.The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent. Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.2. Mezzanine capital, in finance, refers to a subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.3. Project finance is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of its sponsors. Usually, a project financing structure involves a number of equity investors, known as 'sponsors', as well as a 'syndicate' of banks or other lending institutions that provide loans to the operation. They are most commonly non-recourse loans, which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling. The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets and are able to assume control of a project if the project company has difficulties complying with the loan terms.4. Revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Credit cards are an example of revolving credit used by consumers. Corporate revolving credit facilities are typically used to provide liquidity for a company's day-to-day operations. They were first introduced by the Strawbridge and Clothier Department Store.5. Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.6. A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term loans usually last between one and ten years, but may last as long as 30 years in some cases. A term loan usually involves an unfixed interest rate that will add additional balance to be repaid.7. Cash Management Services (Lock box, Remote Deposit Capture, Merchant Processing)8. credit services

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