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1.1 Finance
Finance can be defined as the art of and science of managing
money. Finance is concerned with the process, institutions, markets and instruments involved in the transfer of money among individuals, business and governments. Managerial finance is concerned with the duties of the financial manager in the business firm. Finance came form Latin word Finis means dealing with the money .Finance is called the art and science of managing money. Finance is the process of organizing the flow of funds so that a business can carry out its objectives is the most efficient manner and meet its obligations as they fall due. Renneth Midgely & Ronald Burns. Finance is concerned with the process, institution, markets and instruments involved in the transfer of money among and between individuals, business and government. Lawrence J Gitman Finance means to arrange payment for it. They observe that finance may be generally defined as the study of money its nature , behavior , regulation and problems. George Christy &Peter Roden
Supporti ng Objectives.
T he accountants role.
By providing information for management. Performance measurement. Decision making. Control. By providing information for shareholders and other external parties. Published financial accounts. By ensuring there is finance available for the business activities. Short term liquidity and cash flow. Long term financing and solvency.
2. Finance Function.
The Finance Function has both an internal and an external function within the business. The four main functions are shown below.
Now , we can say that how the finance functions is organized depends on the size of the business and its overall organizational structure . In many organizations , particularly large organizations, the finance functions task are centralized.
(2)Principle of time value of money.. (3)Principle of cash flow .. (4)Principle of profitability and liquidity. (5)Principle of hedging..
(1) Principle of risk & return: Return is the income received on an investor plus any change in market price , and risk is the variability of returns from those that are expected. Financial decisions often involve alternative courses of action. (2) Principle of time value of money: According to the principle of time value of money the value of a unit of money is different time periods . The value of a sum of money received today is more than its value received after some time.
(5)Principle of diversification:
The principle of diversification is of vital importance in asset management. It is based on the axiom, dont pull all your eggs in one basket. The idea is to spread risk across a number of assets or investments.
(6) Principle of hedging: The principle of hedging each asset should be offset with a financing instrument of the same approximately maturity. The principles minimizes the risk that the firm will be unable to pay off its maturing obligations. Types of assets Temporary current assets Permanent current assets All fixed assets Sources of finance Short-term non spontaneous dept. Long-term dept, Equity. Spontaneous current liabilities.
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Finance
Public Finance
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Private Finance
When individuals and organizations are dealing with finance, it is known as private finance . So financial planning , procurement of funds & uses of funds by any individuals or any organization is known as private finance. Private Finance can be classified into three heads Personal finance. Business finance. Financing of sole trader ship, partnership or joint venture company. State owned business finance. Autonomous business finance. Non-business finance.
a) Personal Finance:
This financing is used to day by day business operation. When an individuals makes planning, identification, raising, investment & using of funds to carry out regular business effectively then it is known as personal financing.
b)Business Finance:
Financing that is done to perform the function of business organization very efficiently is known as business finance.
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Public Finance:
When government or local government itself performs the functions like identification of sources of funds, determining the requirement and raising of that funds and proper utilization of those funds is known as public financing.
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of the business.
Equity share: Equity Shares are those shares which doesnt have any preference rights. That is why these shares are called ordinary shares. The dividend rate on Equity Share is not fixed. It means the rate of dividend change with the change of profit. Preference share: Preference Shares are those shares which have two preference rights over equity shares. First, dividend is paid to these shares before to equity shares. Also rate of dividend is fixed on these shares. Second, on liquidation the capital is paid back to these shares before the equity shares.
2. Debentures: These are also issued to the general public. The holders of debentures are the creditors of the company.
3. Public Deposits : General public also like to deposit their savings with a popular and well established company which can pay interest periodically and pay-back the deposit when due.
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4. Retained earnings: The company may not distribute the whole of its profits among it shareholders. It may retain a part of the profits and utilize it as capital.
5. Term loans from banks: Many industrial development banks, cooperative banks and commercial banks grant medium term loans for a period of three to five years. 6. Loan from financial institutions: There are many specialized financial institutions established by the Central and State governments which give long term loans at reasonable rate of interest. Some of these institutions are: Industrial Finance Corporation of India ( IFCI), Industrial
Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI), Unit Trust of India ( UTI ), State Finance Corporations etc. These sources of long term finance will be discussed in the next lesson.
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The supplies purchased by a firm for use in its production process. Work&-In&-Process Inventory: The portion of a firm's inventory consisting of goods part&-way through the production process. Finished&-Goods Inventory: The portion of a firm inventory consisting of completed goods ready for sale. Trade Credit The granting of credit by one firm to another. Open&-Book Credit: A form of trade credit in which sellers ship merchandise on faith that payment from the buyer will be forthcoming.
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Promissory Note: A form of trade credit in which a buyer signs a promise&-to&-pay agreement before the merchandise is shipped.
Trade Draft: A form of trade credit in which the seller draws up a statement of payment terms and attaches it to the merchandise. The buyer must sign this agreement to take possession of the merchandise. Trade Acceptance: A trade draft that has been signed by the buyer. Secured Loan: A loan in which the borrower is required to put up collateral. Collateral: An asset pledged by a borrower; in the event of nonpayment of the loan, the lender has the right to seize the asset.
Pledging Accounts Receivable: Using accounts receivable as collateral for a loan. Unsecured Loan: A loan in which the borrower is not required to put up collateral. Line of Credit: A standing agreement between a bank and a him in which the bank promises to lend the firm a maximum amount of funds on request. The bank will not necessarily have the funds to lend when they are needed, however. Revolving Credit Agreement: An agreement in which a lender agrees to make some amount of funds available on demand to a firm. The lender guarantees that funds will be available when sought by the borrower.
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Commercial Paper: A method of short&-run financing in which large, stable companies issue unsecured notes at a certain face value, sell them for less than the face value, then buy them back at the face value at a later date. Factoring: Selling a firm's accounts receivable to another company. Debt Financing: Long&-term borrowing financed from sources outside the company. Prime Rate: The interest rate available to a bank's best (most credit worthy) customers. Corporate Bond: A bond issued by a business in which the issuing company pays the holder a certain amount of money on a certain date, with stated interest payments in the interim. Maturity Date: The date on which the principal of a bond is paid off. Bond Indenture:
The contract spelling out all the terms of the bond, including the principal amount, the interest rate, and the maturity date. Bond Retirement: The way in which a bond is paid off. Equity Financing: The use of common stock and/or retained earnings to raise money for long&-term expenditures; involves putting the owners' capital to work. Leverage: The use of borrowed funds to finance an investment. Investment Grade Bond: A bond that qualifies for one of the top four ratings by the Standard Poor's or the Moody's rating service.
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1.7
of
1.31 in 2009, according to a World Bank report, published in 2010. Bangladesh is considered as a developing economy which has recorded GDP growth above 5% during the last few years. Micro credit has been a major driver of economic development in Bangladesh and although three fifths of Bangladeshis are employed in the agriculture sector, three quarters of exports revenues come from garment industry. The biggest obstacles to sustainable development in Bangladesh are overpopulation, poor infrastructure, corruption, political instability and a slow implementation of economic reforms.
Objectives:
1)Industrial project term loan. 2)Encourage investments. 3)Financial assistance.
Function:
1)Development of capital market through co-financing. 2)Allows loan for public limited companies through underwriting. 3)Lending money to govt. and private industrial projects for medium and long term basis.
M.D and two directors, Bangladesh Bank appoints one director, and the shareholders appoint the rest directors.
Objectives:
1)Collect savings. 2)Development of capital market. 3)Giving assistance regarding investment. Function: 1)Underwriting public issues. 2)Buying shares. 3)Transactions of share and stocks. 20
of
Financial
Institution
of
Political instability. Lack of awareness. Lack of investment climate. Government interference. Rate of interest. Lack of supervision. Legal problem to realize loan. Lack of information about the loaners. Failure to reach the loan to the needy. Failure to produce collateral. Problem of determining priority. Problem of determining the amount credit.
of
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Reference
1.http://www.google.com/search? client=opera&rls=en&q=Problems+of+financial+institutions+o f+bangladesh&sourceid=opera&ie=utf-8&oe=utf-8 2.http://www.google.com/search? client=opera&rls=en&q=Problems+of+financial+institutions+o f+bangladesh&sourceid=opera&ie=utf-8&oe=utf-8 3.http://www.tradingeconomics.com/bangladesh/branchesspecialized-state-financial-institutions-per-100-000-adults-wbdata.html 4.http://www.tradingeconomics.com/bangladesh/branchesspecialized-state-financial-institutions-per-100-000-adults-wbdata.html
5.http://www.antiessays.com/topics/report-on-problem-offinancial-institutions-in-bangladesh/0
6. Fundamentals of Finance. By Haruner Rashid. Page No:10-13