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CHARACTERISTICS AND FUNCTIONS OF MONEY Characteristics of Money

•  Finance Business function of planning, obtaining, and managing a company’s funds in order to accomplish its objectives effectively and efficiently. THE ROLE OF THE FINANCIAL MANAGER •  Financial manager • Chief financial officer • Vice president for financial management or planning

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CHARACTERISTICS AND FUNCTIONS OF MONEY Characteristics of Money

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  1. • Finance Business function of planning, obtaining, and managing a company’s funds in order to accomplish its objectives effectively and efficiently. • THE ROLE OF THE FINANCIAL MANAGER • • Financial manager • • Chief financial officer • • Vice president for financial management or planning • • Treasurer • • Controller • • Risk-return trade-off • The Financial Plan • • Specifies the funds a firm will need for a period of time, the timing of inflows and outflows, and the most appropriate sources and uses of funds.

  2. CHARACTERISTICS AND FUNCTIONS OF MONEY • Characteristics of Money • Money Anything generally accepted as payment for goods and services. • • To be efficient, money must have certain characteristics: • • Divisibility • • Portability • • Durability • • Difficulty in counterfeiting • • Stability

  3. Functions of Money • 3 Basic Functions of Money: • medium of exchange • common measure of the value of goods and services • acts as a temporary store of value

  4. THE MONEY SUPPLY • • M1 and M2 • • Use of credit cards growing rapidly.

  5. WHY ORGANIZATIONS NEED FUNDS • • Variety of reasons, both short-term and long-term. • • Use financial planning process to determine how to address shortfalls and surpluses. • Generating Funds from Excess Cash • • Most excess cash balances are invested in marketable securities.

  6. SOURCES OF FUNDS • • Debt capital Funds obtained through borrowing. • • Equity capital Funds provided by the firm’s owners. • Short-Term Sources of Funds • • Trade credit, short-term loans, commercial paper. • Long-Term Sources of Funds • • Loans, bonds, and equity financing; public sale of stocks and bonds; private placements; and venture capitalists. • • Leverage Using borrowed funds to increase investment returns.

  7. FINANCIAL SYSTEMS AND FINANCIAL INSTITUTIONS • • Financial system System by which funds are transferred from savers to users. • • Depository institutions Accept deposits that can be converted into cash on demand. • • Nondepository institutions • • Life insurance companies • • Pension funds • • Government-sponsored financial institutions.

  8. Commercial Banks • • Offer a wide range of services. • • Banks operate by pooling funds from checking and savings deposits to offer loans. • Bank Regulation • • Federal deposit insurance • Savings Banks and Credit Unions • • Cooperative financial institutions owned by their members. • Nondepository Financial Institutions • • Insurance Companies • • Pension funds • • Finance companies

  9. THE FEDERAL RESERVE SYSTEM • • Federal reserve system U.S. central bank. • Organization of the Federal Reserve System • • Nation divided into 12 federal districts. • • Governed by a board of directors. • • Federal Open Market Committee sets monetary and interest rate policies. • Check Clearing and the Fed • • Improves the efficiency of the financial system. • Monetary Policy • • Monetary policy Used to control the supply of money and credit in the economy.

  10. U.S. FINANCIAL INSTITUTIONS: A GLOBAL PERSPECTIVE • • Major U.S. banks have extensive international operations. • • Only 3 of the 20 largest banks in the world (measured by total assets) are U.S. institutions • • Other nation’s central banks play roles much like the Fed.

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