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1. Financial Management.

In the past financial management was not a major concern for a business. A company used to establish relations with a local bank. The bank handled the financing and the company took care of producing and selling

Today only a few firms operate in this way. Usually businesses have their own financial managers who work with the banks. Financial management begins with the creation of a financial plan. The plan includes timing and amount of funds and the inflow and outflow of money.

The financial manager develops and controls the financial plan. He compares the expenses involved to the expected revenues. It helps him to predict cash flow.

The financial manager plans a strategy to make the ending cash positive. He can trim expenses or ask the customers to pay faster.

The financial manager also chooses financial techniques. One of them is short-term financing, another is long-term financing.

2.What is Finance?

Finance is the study of how people allocate scarce resources over time. Two features that distinguish financial decisions from other resource allocation decisions are that the costs and benefits of financial decisions are 1) spread out over time and 2) usually not known with certainty in advance by either the decision makers or anybody else. In deciding whether to start your own restaurant, for example, you must weigh the costs (such as the investment in fixing up the place and buying the stoves, tables, chairs, little paper umbrellas for exotic drinks, and other equipment you need) against the uncertain benefits (you future profits) that you expect to reap over several years.

In implementing their decisions people make use of the financial system, defined as the set of markets and other institutions used for financial contracting and the exchange of assets and risks. The financial system includes the markets for stocks, bonds, and other financial instruments, financial intermediaries ( such as banks and insurance companies), financial - service firms (such as financial advisory firms), and the regulatory bodies that govern all these institutions. The study of how the financial system evolves over time is an important part of the subject matter of finance.

Finance theory consists of a set of concepts that help to organize one's thinking about how to allocate resources over time and a set of quantitative models to help one evaluate alternatives, make decisions, and implement them. The same basic concepts and quantitative models apply at all levels of decision making from your decision to lease a car or start a business, to the decision of the CFO of a major corporation to enter the telecommunications business, to the decision of the World Bank about which development projects to finance.

A basic tenet of finance is that the ultimate function of the system is to satisfy people's consumption preferences, including all the basic necessities of life, such as food, clothing and shelter. Economic organizations such as firms and governments exist in order to facilitate the achievement of that ultimate function.