AREAS OF FINANCE

FINANCIAL MANAGEMENT
CAPITAL MARKETS
INVESTMENTS

(Brigham, E. F. Fundamentals of Financial Management. Cengage Learning 2011)

FINANCIAL MANAGEMENT
also called corporate finance,
focuses on decisions relating to
how much and what types of
assets to acquire,
how to raise the capital needed
to buy assets, and how to run the
firm so as to maximize its value.
CAPITAL MARKETS
relate to the markets where interest rates, along with stock

and bond prices, are determined.

also studied here are the financial institutions that supply

capital to businesses. Banks, investment banks,

stockbrokers, mutual funds, insurance companies, and the
like bring together savers who have money to invest and
businesses, individuals, and other entities that need capital
for various purposes.
Governmental organizations such as the Federal Reserve

System (Bangko Sentral ng Pilipinas), which regulates

banks and controls the supply of money, and the SEC,
which regulates the trading of stocks and bonds in public
markets, are also studied as part of capital markets.
INVESTMENTS
Investments relate to decisions concerning
stocks and bonds and include a number of
activities:
(1) Security analysis deals with finding the
proper values of individual securities (i.e.,
stocks and bonds).
(2) Portfolio theory deals with the best way to
structure portfolios, or baskets, of stocks
and bonds. Rational investors want to hold
diversified portfolios in order to limit risks, so
choosing a properly balanced portfolio is an
important issue for any investor.
INVESTMENTS
(3) Market analysis deals with the issue of
whether stock and bond markets at any given
time are too
high, too low, or about right. Behavioral
finance, where investor psychology is
examined in an effort to determine if stock
prices have been bid up to unreasonable
heights in a speculative bubble or driven
down to unreasonable lows in a fit of irrational
pessimism, is a part of market analysis.
CORPORATE GOVERNANCE AND
BUSINESS ETHICS
Corporate Governance
an area that deals with how a
company conducts its business
and implements controls to
ensure proper procedures and
ethical behavior.
(Brooks, Financial Management: Core Concepts 2010)
CORPORATE GOVERNANCE AND
BUSINESS ETHICS
the system by which corporations
are managed and controlled. It
encompasses the relationships
among a companys shareholders,
board of directors and senior
management. (Van Horne, Fundamentals of Financial Management
2009)

These relationships provide the

framework within which corporate
objectives are set and performance is
CORPORATE GOVERNANCE AND
BUSINESS ETHICS
Three categories of individuals are
key to corporate governance success:
1) Common stockholders who elect
the board of directors
2) The companys board of directors
themselves
3) The top executive officers led by the
chief executive officer (CEO).
CORPORATE GOVERNANCE AND
BUSINESS ETHICS (Role of the Board of Directors)
Critical link between shareholders
and managers; the most effective
instrument of good governance
Sets company-wide policy and
advises the CEO and other senior
executives, who manage the
companys day-to-day activities.
CORPORATE GOVERNANCE AND
BUSINESS ETHICS (Role of the Board of Directors
Reviews and approves
strategy, significant
investments, and acquisitions.
Oversees operating plans,
capital budgets, and the
companys financial reports to
common shareholders.