Basic Fundamentals of Financial Management.

Who is a finance manager.?

• In simple words, we can say, to arrange the funds from various source when he required at an acceptable cost.  
• He can arrange the funds by liaising with banks, financial institute, deal with merchant banking agencies, procuring the funds by issuing shares, debentures and inviting the public to invest in FD.
• He has also taken care about the deployment of funds and this activity called as Investment decision.
• After deployment, he has to control and regulate the flow of funds this task called as financial control.
• He has to make a decision in a such a way that there would be fewer risks and margin of profit should be more. In other words, the return should be more than its cost of risks. This is called Risk-Return Trade-Off.

What are the different forms of business.?

• Sole Proprietorship.
• Partnership.
• Companies.

What is the difference between a private company and a public company.?

Public Company

• Minimum number of the person to form a company:-7
• Maximum number of the person to form a company:-No restriction
• Minimum number of directors:-3
• Maximum number of directors:-12
• A public company has a minimum paid-up capital should be 5 lakh rupees or higher
• Subscription of shares:-No such restriction

Private Company

• Minimum number of the person to form a company:-2
• Maximum number of the person to form a company:-50
• Minimum number of directors:-2
• Maximum number of directors:-3
• A private company has a minimum paid-up capital should be 1 lakh rupees or higher.
• Subscription of shares:-Prohibits any invitation to the public to subscribe for any shares or debentures of the company

Financial Market

• It is a market where financial assets are created or transferred. 

•  We can claim the sum of money on the basis of future value or the present value of an asset, in the form of interest or dividend.
• Financial markets are classified as money market and capital market. Sometimes classified as primary and secondary markets.
• The distinction between markets depends on the maturity period of the financial assets issued in these markets. 

•  Generally money market deals with all transactions in short-term instrument means one year or less. Whereas the capital market deals with transaction related to long-term.

 What is Money Market.?

People those who want to do short-term productive investment for them only one market is suitable that is money market.

• ex. Call money markets, Treasury bills markets for commercial paper and certificate of deposit

What is Call Money Market.?

• The call money market forms part of the national money market, where day to day usurp the plus funds, most of the banks are traded.
• The call money loans are of very short-term in nature and the maturity period of this loan vary from 1 to 15 days.
• The money that is lent for one day in this market known as call money and if it exceeds but less than 15 days, it is referred to as notice money. In his market, any amount will be lent or borrowed at a convenient interest rate which is acceptable to both the borrower and the lender. These loans are considered as highly liquid and as they are repayable on demand at the option of either the lender or borrower.
• In India the call money markets are mainly located in the commercial centre and big industrial Centre such as Mumbai, Kolkata Chennai, Delhi and Ahmedabad Mumbai and Kolkata from significant portion in trading due to the location of the biggest stock exchange head offices of RBI and many other banks, Mumbai plays a predominant role as far as volume of funds is concerned

Call Rates

• The interest paid the on-call loan is known as the call rates.
• The case of other short-term and long-term rates, the call rate is expected to freely reflect the day to day availability of funds. The rates vary highly from day to day, often from hour to hour. While high rate indicates the tightness of liquidity in the financial system low rate indicates and easy liquidity position in the market. The rate is largely subjected to be increased by the force of demand and supply for funds.

Treasury bills

1. Commercial paper and certificate of deposits.

• Commercial paper and certificate of deposit or money market instrument launch in the early nineties and the market of this instruments are not well developed in India when compared to foreign countries.
• Certificate of deposits was introduced in India in 1989 based on the vague committee recommended the introduction of CDS further the widen the money market instrument giving the investor greater flexibility to deploy short-term surplus funds certificate of deposit or lowest drugs category investment option and stands next to T-bills

2. Commercial paper

• Based on the Recommendation of the working group on the money market, the RBI introduce commercial paper in 1990 and enabling highly rated corporate borrowers to diversify the source of short-term borrowing and to provide an additional instrument to investors.
• Commercial paper is a non-secure on usance and money market instrument issued in the form of promissory notes at a discount and it is Transferable by endorsement and delivery and is of fixed maturity.

Money market mutual funds

• Money market Mutual Funds that invest primarily in the money market instrument of very high quality and very short maturity. The money market mutual fund can be set up by commercial banks RBI and public financial institution either directly or through the existing mutual subsidiaries, the guidelines with respect to the mobilization of funds by money market mutual fund provide that only individuals are allowed to invest in such funds.
• Money market Mutual Funds specify a many more lock-in period of 15 days during which the investor can not redeem his investment the guideline also stipulate the minimum size of the money market mutual fund to be prepared 50 crores and this should not accept two per cent of the aggregate deposit of the largest Accounting in the case of the bank and the two per cent of the long-term domestic borrowing in the case of public Financial Institutions.

Capital market

•  The capital market provides the resources needed by medium and large scale industries for investment purpose while the money market provides resources for working capital needed as such file money market as such while money market deals in short-term resources of funds, capital market deals in long-term sources of funds.
• Capital market divides into two other markets 1)primary market 2) secondary market.

Primary market

• To meet the financial requirements of the project companies raises capital through issues of securities (shares and debentures) in the primary market.

Types of issues

1. Public issues

Public issue is the most popular method of pricing capital and involves raising of funds directly from the public

2. Rights issue

The rights issue is the method of raising additional finance from existing members by offering securities to them on PRO rate basis.

3. Bonus issue

Some companies distribute profits to existing shareholders by way of fully paid bonus shares in lieu of dividend bonus shares are issued in the ratio of existing shares held the shareholders do not have to make any additional payment for these shares.

4. Private placement

Private placement market financing is the direct sales by a public limited company or private limited company of private as well as the public sector of its security to a limited member of sophisticated investors like LIC, State Finance Corporation and pension and insurance fund the intermediate or credit rating Agencies.

Secondary market

• The secondary market is that segment of the capital market where the outstanding securities are traded from the investor point of view the secondary market imports liquidity to the long-term securities held by them by providing an options market of the securities.
• The secondary market operates through the medium of stock exchange which regulates the trading activities in this market and ensures a measure of safety and fire D Link to the investor.

Derivative market

The word derivative originate from mathematics it refers to a variable which has been derived from another variable of the financial derivative is a product error from the market of the Other products and the derivative market has no independent system without an underlying commodity or assets the price of the derivative instrument is a Continental on the value of its underlying assets.

Thank You
Nimesh Waghela.