the treasury bill market is the largest single segment of the money market. the trading of treasury bills in secondary markets is a major tool in the implementation of monetary policy. a treasury bill is an obligation of the government to pay bearer a fixed sum at specified data. treasury bills are regularly issued in maturates of 91 days, 182 days and 365 days, with the 182 or six month bill representing the largest volume. treasury bolls have a minimum denomination of Rs.100000 and goes up from that minimum in increments of Rs. 5000. in Nepal, Nepal rastra bank issue treasury bill on behalf of the government to meet funding gap of the government to support various development programs. treasury bills are sold in as auction market with the government system handing the sales on behalf of the treasury bills do not pay interest directly but are sold at a discount, with the amount of discount being determined by the auction process.
So far we have seen that financial managers are primarily concerned with investment decisions and financing decisions with in business organization. The great majority of these decisions are made with in the corporate business structure. Hence, most of our discussion in this book focuses in the financial decision making in corporations. One such issue concerns the objective of financial decision-making. What goal or (goals) do managers have in mind when they choose between financial alternatives? Whenever a decision is to be made, management should choose the alternative that most increase the wealth of the owners of the business. These decision relating to corporation are continuous. To apply these decisions, the corporation should have to set of goals. There are two broad goals for the corporation. They are two widely discussed schools of thought about the objectives of the firm.
The financial manager’s task is to make decisions concerning the acquisition and use of funds for the greatest benefit of the firm. Some specific responsibilities are as follows: 1. Financial managers use forecasting and playing to shape the firm future position. 2. Financial managers make major investment and financing decisions. 3. Financial managers co-ordinate and control when interacting with other executives so that firm operates as efficiently as possible. 4. The financial manager must deal with the financial markets. In sum, the central responsibilities of the financial manager relate to decisions on investments and now they are financed. In the performance of these functions, the financial manager’s responsibilities have a direct bearing on the key decisions affecting the value of the firm.
Financial management is important in all types of business including banks. And other financial institutions, as well as industrial and retail firms. it is also important in governmental operations, schools, hospital and highway departments.
Financial management is must important for people in marketing, accounting, production, personal, and other areas to understand financial in order to do a good job in their own fields. Marketing people, for example, must understand how marketing decisions affect and are affected by funds availability, by inventory levels, by excess plant capacity, and so on. Nowadays the importance of managerial finance increasing day by day. Failure and deteriorating of many corporations increase the importance of the managerial finance. For example, the failure of Necon air limited,
The importance of managerial finance or financial management can be given below:
1.To make investment decision: - financial management is important for decision regarding the investment in long-term assets like building. Furniture, machineries etc.
2.To make capital structure decision :- capital structure is the mix of the ling – term sources capital structure helps to decide the appropriate proportion of the long-term funds like equity share capital, preference share capital, debt etc. therefore financial management is important for the determining the optimum capital structure that maximizes the value of the firm.
3.To make dividend decision:- dividends is the return for shareholders that are distributed to the shareholders. The firm is not legal obligation to pay dividend to the shareholders. Financial management helps to make dividend payout or retention decision amount of dividend per share.
4.To achieve certain goal:- most corporations have the goal of wealth maximization managerial finance or financial management helps to achieve such goal with the help of functional areas of financial management.
Corporate financial management is the combination of ‘corporate’ and ‘financial management’. The financial management is the financial decision making process. Corporation is a type of business organization. Example of corporation are Nepal bank limited, American insurance company, national bema sans than, Annapurna finance company limited. Therefore, the corporate financial management is the decision making process in a corporation.
If you are the sole owner of a business, then you make the decisions that affect your own well-being. But what if you are a financial manager of a business and you are not the sole owner? In this case, you are making decisions for owners other than yourself. You, the financial manager, are an agent. An agent is a person who acts for and exerts power of another person or group of persons. The person (or group of person) the agent represents is referred to as the principal. The relationship between the agent and his / her principal is an agency relationship agency problem or relationship may be defined as a potential conflict for own interest between stockholder versus manager and stockholder versus creditors. Important agency relationships exist: (1) between stockholders and managers. (2) Between stockholders and creditors. 1.stockholders and manager A potential agency problem arises whenever the manager of firm owns less then hundred present of the firm's common stock . if a firm is a proprietorship managed by the owner. the owner - manager will presumable operate so as to improve his own welfare, with welfare measured in the form of increased personal wealth . there are four commonly used machanisms that help align manager interest with investor interests so that managers will be motivated to act in ways that are in the best interests of investors: (1) Intervention: Directly intervene in cases where management is underperforming. institutional investors often have enough knowledge to provide reasonable oversight of managerial actions and decision making processes. they also have sufficient clout to be able to get managers to act in ways that are in the investors best interest by threatening to make proposals at shareholder meeting that would force management changes or at least bring management shortcoming to the attention of other investors. (2) Replacement: replace manages that are not performing well or that are not making decisions that are in the best interest of investors. again, institution investors may have the knowledge and sufficient clout to initiate such actions. (3) management compensation: structure management's compensation so that good managers will be attracted to the firm and be motivated to make decisions that maximize investor wealth. some obvious way of doing this is to offer managers a basic salary, plus bonuses, performance share, and executive stock options that are based on how well the company performs. if managers are also shareholders they have a financial interest in maximizing the value of the shares. (4) Takeover threats: Takeover threats are always possible when the management of a form is not maximizing the wealth of its investors. when management is not making decisions that will maximizing share value, the market price of the corporation's securities will tend to leg behind the securities price of rival firms. takeover specialist may see an opportunity to take control of an under performing company by offering a premium price for existing share, replacing the management, changing the way the company is being operated, and increasing the firm's value. the threat of a takeover, therefore, will tend to keep managements motivated to operate the firms they manager well enough so that the publicly traded securities will be priced close enough to their optimum value that a takeover effort would not be warranted. 2.stockholders and creditors A second agency problem involves conflict between stockholders and creditors. creditors lend funds to the firm at rates that are based on (1) The riskiness of the firm's existing assets. (2) Expectations concerning the riskiness of future asset additions. (3) The firm's existing capital structure. (4) Expectations concerning future capital structure changes. creditors provided the portion of capital and receive a fixed interest in return. while stockholders emphasize maximizing the value of their investment by taking high risk, creditors oppose high risk as it exposes them to more risk for no additional risk premium. creditors interest is to earn fixed return on their investment and recover their capital up on maturely. creditors receive just a fixed interest and have no right over the extra returns that are expected from additional risk taking. providing higher risk premium to creditors for higher level of risk generally solves this problem. the market interest rate is risk adjusted and the creditors are compensated for the level of risk they assume.
Financial management can be defined as the process of acquiring and using funds to accomplish a financial objective. Simply put, financial management has to do with getting your hands 0n money and deciding how best to spend, save, or invest it.
Some important firm level financial management activities include identifying a business strengths and weakness, evaluating investment opportunities, forecasting future funding needs and managing the implementation of the investment. All of these financial management activities require that the manager project the future position of the firm under different scenarios and determine the likelihood of accomplishing started goals. Financial management decisions regarding the acquisition of funds must consider whether to acquire funds through one’s own financial resources, the financial resources of other investors, or by borrowing, possible outside sources of funding might include commercial banks, the farm credit system, life insurance companies, individuals and others, stocks or bonds. Decisions will also be mode about whether to obtain long-term, or some combination of long-and short-term funds.
Financial management decisions also focus on asset investment opportunities. There is an almost limitless set of investment opportunities available with a wide variety of different characteristics. Some investments will be of a short-term nature. Such as “cash” or inventories, while others. Such as real estate or production facilities, will provide long-term returns. There are investments available that provide fairly certain, low risk returns, while others will provide uncertain high-risk returns.
the treasury bill market is the largest single segment of the money market. the trading of treasury bills in secondary markets is a major tool in the implementation of monetary policy. a treasury bill is an obligation of the government to pay bearer a fixed sum at specified data. treasury bills are regularly issued in maturates of 91 days, 182 days and 365 days, with the 182 or six month bill representing the largest volume. treasury bolls have a minimum denomination of Rs.100000 and goes up from that minimum in increments of Rs. 5000. in Nepal, Nepal rastra bank issue treasury bill on behalf of the government to meet funding gap of the government to support various development programs.
