Financial Market And Institutions As Major Area Of Business Finance

Finance covers the study of financial market and financial institutions. It studies the financial markets like money market, capital market, security market. It also studies the financial management of the financial institutions like commercial banks, insurance companies, saving and loan associations, finance companies, pension fund etc. It is because, the financial institutions also have the financial problems similar to that of individuals and business firms.

On the whole, the financial market and the financial institutions may be called financial services. The financial service is that organ of finance which is concerned with providing consultancy and financial services to the individuals and the government. The finance service consists of banks and related financial institutions, personal financial planning, investment, real estate, insurance and so on.

The financial markets and the institutions are rapidly changing all over the wold. In finance, we study the causes of these of securities have been introduced. In finance we study the impact of such new type of investment opportunities on the depositors and the issuing institutions. Similarly, next we study the evaluation capacity of the market participants of the rate of interest and the risks associated with different investment opportunities, and also about the capacity to select the appropriate investment opportunity. At times, it is difficult to borrow due to the increase in the cost of credit. This situation is called 'Credit Crunches'. The financial decision-makers should study about such situations and should know how money is acquired eventually

Business Or Corporate Finance As Area Of Business Finance

Business finance is the next organ of business finance. The business firms also have the problems of acquiring and allocation of resources. The business firms will have to make decisions such as - which one of the investment opportunities is to be selected and how to finance the investment. For example, the firm will have tho decide whether the investment should be financed through issuing debentures or by borrowing from banks. The individuals try to derive maximum satisfaction from their expenditure, where as the business firms use their resources so as to maximize the wealth of their owners of share holders. The financial theories assets the investors in deciding the appropriate investment alternative.

Business finance is a major part of any country. It can be uplift the country's economic condition. The business finance is also know as corporate finance which is most important area of business finance. The global economic crisis can be solve by investing in the field of business financing sectors.

Government Or Public Finance As Major Area Of Finance

The government agencies also have the financial problems similar to the individuals and business firms. The part of finance that deals with the financial activities of the government agencies is known as public finance. It consists of the theories of taxation, issue of government securities, formulation of budget, asset management financial planning and so on. Most of the financial decisions of the private sector are made with a view to maximization of profit or maximization of consumers' satisfaction. On the contrary, the financial decisions in the public sector are made with a view to maximization of social welfare.

In the Nepalese contest we see the government is not stable and their policies are not implemented properly so government financing is not playing a leading role to uplift the economic conditions of the Nepal. To get better economic condition of any country government should finance their funds in the public sectors. The condition of business finance in Nepal is not so good and can be improved

Personal Finance

The financial decision made by the individuals and households is known as personal finance. The financial problems of the individuals relate to the maximisation of their prosperity by utilizing the resources available to them. In personal finance we study as to how the individuals divide their income between consumption and investment, how they select the best alternative from among the available investment opportunities. Similarly, we study how the individuals arrange money for the increased consumption or investment.

In Nepal mainly people spent their money on their basic needs because of their income level and lack of employment.Most of the portion of the populations have very low income and that's why they could not able to invest their money in the productive sectors. Personal finance is a one of the major area of business finance which deal with the individual income divide into their consumption and investment.

Primary Market And Secondary Market

The financial market may be classified into primary and secondary markets on the basis of the economic function. The financial market for new securities is called primary market. The financial market transfers the funds from savers to investors through the primary market. Hence, the transactions of the securities issued for the first time take place in this market.

The main function of primary market is to make the financial capital available to make new investments in building, equipments, stock of necessary goods,.The investments bankers perform the role of an expert in issuing new securities. These bankers make available advice to the business firms regarding the nature of securities, maturity, interest rate and underwrite the issue of securities. The commercial banks are not directly involved in this market. Usually, the business firms make private placement of securities to the buyers without underwriting is called private placement of securities.

On the other hand, the existing and pri-developed securities are bought and sold in the secondary market.Its main function is to provide liquidity to the purchasers of securities. This market remains as a centre to convert stocks, bonds, and other securities into cash immediately. Since the secondary market provides liquidity to the securities, the investors are encouraged to buy securities in the primary market.

The transactions are more in secondary market than in primary market. But these markets involve in mutually closely related way. For example, if the interest increases or the price of securities increase in secondary market, the interest and price of primary market also increase because of the investment transfer from one market to another according to price and return. As of instance, financial institutions become active in both markets.

Financial Market in Nepal

The financial market in Nepal is not basically different from the financial market in general. Hence, it has been explained very briefly here.

The financial market is still in infancy in Nepal. Since, the financial market plays an important role in the efficient distribution and use of resources, it is extremely important in a capital-poor country like Nepal.

The system of lending and borrowing in an unorganised way id prevalent in Nepal since the ancient time. Even today substantial portion of rural credit is available from the unorganised. The system of providing loan through the organised sector was initiated by Tijarath Adda established in 1933 B.S. The scope of this institution which made available loans only to the government employees in the beginning was limited.

The system of collecting deposit and granting loans in the organised sector had started with the establishment of Nepal Bank Ltd. in 1994 B.S The mobilisation of funds by selling securities to the general public had, however, started with the establishment of Biratnagar Jute Mill in 1993 B.S. The organised transaction of securities started in an organised way with the establishment of Security Market Centre (present Nepal Stock Exchange) in 2033 B.S.

There are many changes taking place in the financial system of Nepal due to financial liberalisation. The business activities are increasing rapidly. The situation of monopoly has come to an end and the situation f competition has emerged in Nepalese financial system. many banks and financial institutions have been established to cater the credit need of individuals and business firms.

Business Finance

Business finance is a branch of finance. The study related to the process and theories of acquiring and utilizing resources of the businesses is known as business finance. Business finance is also referred to as managerial finance, corporate or corporation finance and company finance. The theories of business finance are applicable to both small and large scale businesses. But since in modern time most of the businesses are of large size corporations, business finance is found to concentrate on the policies and theories of these corporations. Hence in this site, the terms business firm, firm,company have been used synonymously.

The general definition of finance is also applicable in case of business finance. The only difference is that the definition of business finance is related to firm or business of corporation.

In conclusion, finance is a subject related to the study of acquiring, managing and efficiently utilising the funds for businesses. It studies the facts and policies related to finance. The study of facts denotes the study of the existing and prevalent producers of financial administration and management. On the other hand, policy denotes the formulation of theories which guides in making sound financial decisions.

Since business finance is a branch of finance in general, it is also both art and science. It is an art related to when, how, how much of economic resources should be raised for the smooth operation of business. On the other hand, it is a science of how to predict the financial quantities. It is a science that prepares the strategy to achieve the desired objective by collecting analyzing the financial facts.

Open Market And Negotiated Market

Financial market is divided into open market and negotiated market. The open market means an impersonal market. In this market good quality securities are bought and sold in large quantity. There may not be contract between buyers and seller. The security market is an example of open market. In this market the equity securities of big companies are sold and purchased by big-small investors. The bonds of some companies are sold to the highest bedder through the open market. Such bonds are purchased and sold many times before maturity. Most of the government securities are sold in the open market.

The market in which the lender and the borrower negotiate the loan and personal basis is called negotiated market. In this market, corporate securities are sold by personal negotiation to one or more than one buyer. In it, the securities purchased are dept with security until maturity. A bank taking loan from a bank or a businessman taking loan from credit institution fall under negotiated is called non-intermediate financial market.

Money Market And Capital Market

The financial market is a means to transfer funds from savers to those in need of funds. But the functions performed by different financial institutions widely differ.The price of the financial instruments traded in financial markets and the need of different persons and institutions also deffer. Hence, there is a practice to classify the financial market in different ways. Money market and capital market is one of most important classification of the financial market.

The most important and mostly used classification of financial market on the basis of the nature of business or the maturity of he securities traded is money market and capital market. This classification is , therefore, based on the maturity of the financial instruments traded in the market.

Money market provides short-term credit. Here the individuals, government and institution having savings for some time come into contact with the borrowers needing short-term funds. The instruments or evidence of credit of money market matures within one year. The main function of money market is to provide working capital loans to the businesses, loans to the government and provide loans for the purchase of goods and securities for speculation.

On the contrary, capital market makes funds available for long-term investments. The long-term financial instruments are traded in the capital market, such as stock, bond, government securities etc. The maturity of the instruments traded in capital market is of more than one year period.

Financial Markets

The financial market is an organ of financial system. The financial system is and important element of a modern economy. The resources are exchanged through the financial system. It helps in the payment of goods, services and productive inputs. Similarly, it makes easier to manage funds efficients and use them.

The financial system consists of financial institutions, financial market and financial instruments. Financial institution denotes commercial banks, saving and loan association, insurance company, central bank etc. These institutions create financial instruments and make economic transactions.Financial market denotes the place or mechanism where financial instruments are traded. Financial instruments between concerned parties. The financial instruments other than money included in the financial system are stocks, bonds etc.

Both saving and investment are compulsory for economic growth. The financial system converts savings into investment. It makes the saving investment process convenient through financial intermediary. The financial intermediaries receive financial liability or primary security from the fund deficit persons, and issue their own financial liabilities or indirect securities for those desiring to invest saved funds.

Relation Of Finance With Marketing

Finance has indirect relation with marketing, human resource management and quantitative methods. Finance has broad field so it has directly or indirectly related with many more aspect. Marketing is closely related with finance but the relationship is indirect. Indirectly, marketing is making so much positive or negative effect to the finance.

The personnel of marketing decision forecast the sales of a firm. The financial decision maker decides the financial involvement of such forecasting. Whether the forested sales can be made available from financial resources or not ?If not, how much new fund is needed should be decided by the decision Maker. The capital is required for the promotion plan of new product. It has effect on the estimated cash flow. So the financial manager should give attention on such effects.If the financial manager neglect the effect of marking on finance then the business will got an accident. So it is very important relationship.Any business company can sell their product only by marketing and sell will increase and the business will be financial strong.

Relation Of Finance With Accounting

Finance have very close relation with accounting. It is very important relation of business term that make us understand of various terms.

Accounting is concerned with keeping records, reporting and measurement of business transactions. Accounting and finance are inter-related subjects. Hence, a financial manager should be able to understand and correctly explain the accounting information's.

The accounting process produces raw materials necessary for financial decision making which is called financial data. If the financial records are bad, the financial decisions are also likely to be bad. Accounting is a sub-function of finance. Accounting consists of the statement of balance-sheet, statement of profit and loss, sources and uses of fund etc. such statements help the financial manager in evaluating past performance and determining the future direction of the firm.

Relation Of Finance With Economics

Finance and economics are closely related. Economics is a subject which studies the allocation of scarce resources within the society, household or firm. It provides foundation stone for the financial decision making. Economics thus provides the essential theories necessary to make decision regarding t5he smooth operation of the firm. Hence, the knowledge of economics is essential to the financial decision maker. Finance is the study of economic happenings. In this context, finance is the application of economics. In other words, finance is a part of the economic theory of a firm.

Economics is broadly divided into two parts- micro economics and macro economics. Macro economics is the study of the whole economic system. It consists of the techniques used to analyse the changes in total output, total employment, unemployment rate, consumers' price index and so on. It analyses the effects of investment, government revenue, tax policy on export, production,employment, price and so on. Macro economic is related to the overall environment of the operation of the firm. The main subjects included In it are - banking, money and capital market, monetary, credit and fiscal policies, and economic policies used to control the economic activities. The business firms operate in the macro-economic environment. Hence, the financial mange will have to be well acquainted with the macro- economic environment, effects of change in economic policies.

Micro economics has direct use in the daily working of a firm. Micro economics is concerned with the individual firm, individual behavior and their interactions in the market.Micro economics provides theories necessary to run smoothly the business enterprises. The theories of micro economics like demand and supply analysis, profit maximization strategies, product pricing strategies, methods of measuring utility, risk and price, marginal analysis, cost analysis etc. are very useful in decision making.. The knowledge of these concepts directly benefits a firm in profit maximization and cost minimisation. Hence, it is necessary to know both the basic theories of economics and form's environment and decision technique. Besides, the applied micro economics has been developed as managerial economics. Managerial economics is the application of micro economics in business decision making. It consists of demand, production, pricing, market structure, government regulation and so on. The theories of the economic behavior of the firms and individuals are extremely important in financial decision making or finance.

Finance: Art or Science ?

Lawrence J. Gitman has defined finance as 'an art and science of managing money'. It implies that finance is Both art and science. Finance is a matured science since it provides knowledge as to how and at what time a firm should invest to outstrip other firms.

On the other hand, finance is also an art. In modern time, finance has become more analytical. The new financial theories have been developed. Many data have been developed to prove these theories right or wrong. the financial mangers should examine the different alternatives related to the raising and managing money. they should formulate the models to predict the results obtained from the use of any one alternative.

In this way, the new theories, models and methods have made finance scientific. But the financial theories cannot be accurately compared with the 'Scientific Method' that applies to physics science. Physics predicts as to what happens from an action. for example, physics says that if a ball is thrown upward, that eventually falls down. This is not true in finance. For example, the financial analyst can predict from the historical trend that the rate of interest will change in a definite pattern. But, in reality, the rate of interest may change in different pattern. Despite this, financial guidelines and theories are useful in financial decision making. But any decision should be made by mixing those guidelines with self-skill. According to R.A. Stevenson, in modern time finance is a 'scientific art'. He opines 'finance is the science of knowing how to predict financial consequences and the art of knowing when to act'. It assists the financial managers of today to avoid the difficulties of tomorrow.

Classification Of Finance.

Finance is broadly defined into two parts:-

1. private finance:-

The private finance can be further divided into personal finance and business finance. the personal finance is concerned with the acquisition and the proper utilization of economic resource by the individuals and households for meeting their different needs The business finance is also a part of private finance. the business finance is concerned with the acquisition, management and utilization of fund by the private business organizations. the business organizations may also be in the form of public enterprises. but the public enterprises fall under the category of public finance.

2. Public Finance:-

Public finance is the study of the financial aspect of the government. here we study about the government expenditure, public revenue, public borrowing and financial administration. The economic activities of the pubic enterprises also fall under public finance. The objective of private of business finance is to earn maximum return or profit. On the contrary the objective of public finance is to maximize social welfare.

Finance as a Discipline

The term Finance is a most widely used word in the field of economic activity. In ordinary sense the term finance denotes money or wealth. But it has wider meaning in economic activity. Finance is regarded as the life-blood of business system. As a man cannot live without blood, so is business and economic system unimaginative without finance.Neither a business can be initiated nor can it be run smoothly without it. Finance is thus the basis of the prosperity of a business. It is regarded as the key to success of a business firm.

Finance is the main means of the mobilization of funds. The method of acquiring, managing and allocating the fund is known as finance. Finance converts the accumulated fund into productive uses. Finance is related to the method of acquiring and spending the fund. Hence, the subject related to the study of the technique and process of acquiring fund for a business and the use of that fund is known as finance. Finance is, therefore, called the Science of Management of Money.

Finance as a discipline has been defined in many ways. Some of the definitions are as fallows:
According to R.A. Stevenson- "Finance is the means by which the funds are obtained and the method by which these funds are manged and allocated." He is of opinion that finance is concerned with the act of financing. Hence, the management of furnace denotes the managing the means of payment. Finance consists of money , credit, stock, bond, mortgage and so on.
In short, finance is a subject related to the acquisition, management ans utilization of the fund. Finance can be studied in individual, business and government level. In all these levels, finance is concerned with the decisions related to the individuals or agencies acquiring and spending money.