Financial Management and Banking - Bakersfield College

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© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

1

Financial Management
and Banking

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

2

Role of Financial Management

Rent and Utilities

Plant and Equipment

Materials

Advertising
-
Promotions

Distribution

Wages, Salaries, Training

Interest, Dividends, Taxes

Sales from Operations

Sales from Assets

Retained Earnings

Trade Credit

Bonds

Stocks

Commercial Loans

Management

Decides How

To Use Funds

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

3

Implementing

the Financial Plan

Cash Flow

Cash Reserves

Electronic Cash

Management

Marketable

Securities

Inventory

Control

Accounts

Receivable

and Payable

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

4

Operating Budget

Revenues

Expenses

Cash Flows

Cash Flows

Master

Budget

Financial Control

Cost Control

Expenditures

Plan for the Future

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

5

Request

Review

Evaluate

Recommend

Capital Budget Process

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

6

Financing Operations

and Growth

Length of Term

Cost of Capital

Debt or Equity

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

7

Length of Term

Short
-
Term Financing

Long
-
Term Financing

Time

Frame

More Than

One Year

Less Than

One Year

Maintain Liquidity

Meet Obligations

Acquire Assets

Fund Growth

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

8

Long
-
Term Loans

Leasing

Bonds

Preferred Stock

Common Stock

Sale of Assets

Retained Earnings

Internal

Sources

Debt Capital

Equity Capital

External

Sources

Long
-
Term

Projects

Long
-
Term Financing

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© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

9

Cost of Capital

Company Risk

Opportunity Cost

Interest Rates

Quality

Time

Prime Rate

Discount

Rate

Leverage

Capital

Structure

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
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10

Characteristic

Debt

Equity

Maturity

Specific

Nonspecific

Claim on Income

Fixed Cost

Discretionary Cost

Claim on Assets

Priority

Residual

Influence

Over Management

Little

Variable

Debt versus Equity

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

11

Open Account

Purchases

Short
-
Term

Promissory

Note

Secured or

Unsecured

Owner

Rents Asset

To User

Obligation

of Repayment

Plus Interest

Trade Credit

Commercial

Paper

Loans

Leases

Bonds

Types of Debt Financing

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

12

The U.S. Financial
System

Deposit



Commercial banks



Savings and loans



Mutual savings banks



Credit unions

Nondeposit



Insurance companies



Pension funds



Finance companies



Brokerage firms

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
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13

Checking

and Savings

Credit, Debit,

and Smart Cards

Financial

Services

Business Loans

On
-
Line Payments and

Electronic Banking

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

14

Checking and Savings Accounts

Checking Account

Savings Account

Deposit Account

Demand Deposit

Accounts

Statement Savings

Accounts

Money Market

and CDs

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

15

Business Loans

Expansion

Construction

Purchases

Renovation

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

16

Short
-
Term Credit

Credit Cards

Debit Cards

Smart Cards

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

17

Online Payment Systems

Advantages

Disadvantages

Security of Personal Information

Ease of Making Payments

Easy to Set Up

Account Maintenance Issues

Software Problems

Consumer Protection Issues

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

18

Electronic Banking

Automated

Teller

Electronic

Funds Transfer

Online

Banking

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
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19

Bank Safety and Regulation


Federal Deposit Insurance Corporation


National Credit Union Association


State Banking Commission


Office of the Comptroller of the Currency


Office of Thrift Supervision


Federal Reserve System

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

20

The Future of Banking

Industry Competition

Banking Ethics

Crime and Terrorism

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
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21

The Federal Reserve System

Conducting Monetary Policy

Stabilizing the Banking System

Stabilizing the Economy

Clearing Checks

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
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22

Durable

Portable

Medium

of Exchange

Measure

of Value

Store

of Value

Stable

Divisible

What is Money?

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

23

U.S. Money Supply

Hard Currency

Demand Deposits

Time Deposits

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

24

Measuring the Money Supply

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

25

Influencing the Money Supply

Decrease

Increase

Lower

Raise

Buy

Sell

Reserve Requirements

Discount Rate

Open
-
Market Operations

Selective Credit Controls

Fewer

More

To Increase

Money Supply

To Decrease

Money Supply

© Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17
-

26

Federal Reserve Functions

Supplying

Currency

Clearing

Checks