INTRODUCTION

RAIS

AHMAD MBA (FINANCE), MA (ECO) M.PHIL IN PROGRESS FELLOW MEMBER OF PAKISTAN INSTITUTE OF PUBLIC FINANCE ACCOUNTANT (FPA 2379) CORRESPONDANCE COURSES: ISLAMIC LAW HADITH FROM INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

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STRATEGIC FINANCIAL MANAGEMENT

Finance

studies and addresses the ways in which individuals, business, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects.

The term "finance" may thus incorporate any of the following:

The

study of money and other assets; The management and control of those assets; Profiling and managing project risks; The science of managing money; As a verb, "to finance" is to provide funds for business or for an individual's large purchases (car, home, etc.).

The activity of finance is the application of a set of techniques that individuals and organizations (entities) use to manage their money, particularly the differences between income and expenditure and the risks of their investments.

An entity whose income exceeds its expenditure can lend or invest the excess income. On the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims.

The lender can find a borrower, a financial intermediary, such as a bank or buy notes or bonds in the bond market.

The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary pockets the difference.

A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays the interest. The bank then lends these deposits to borrowers.

Banks allow borrowers and lenders, of different sizes, to coordinate their activity. Banks are thus compensators of money flows in space.

A specific example of corporate finance is the sale of stock by a company to the public. The stock gives whoever owns it part ownership in that company.

Of course, in return for the stock, the company receives cash, which it uses to expand its business in a process called "equity financing".

Equity financing when mixed with the sale of bonds (or any other debt financing) called the company's capital structure.

Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance), as well as by a wide variety of organizations including schools and non-profit organizations.

In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments, with consideration to their institutional setting.

Finance is one of the most important aspects of business management. Without proper financial planning a new enterprise is unlikely to be successful. Managing money (a liquid asset) is essential to ensure a secure future, both for the individual and an organization.

THE FINANCIAL MANAGER'S RESPONSIBILIES

The financial manager's task is to acquire and use funds so as to maximize the value of the firm.

Forecasting and planning

The financial manager must interact with other executives as they look ahead and lay the plans, which will shape the firm's future.

Major investment and financing decisions

A successful firm usually has rapid growth in sales, which requires investments in plant, equipment and inventory. The financial manager must help decide what specific assets to acquire and the best way to finance those assets.

For example, should the firm finance with debt, equity, or some combination of the two, and, if debt is used, how much should be long term and how much should be short term?

Coordination and control The financial manager must interact with other executives to ensure that the firm is operated as efficiently as possible.

Dealing with the financial markets

The financial manager must deal with the money and capital markets. The general financial markets where funds are raised, where the firms securities are traded, affect each firm and where its investors either make or lose money.

Risk management
All businesses face risks, including natural disasters such as fires and floods, uncertainties in commodity and security prices, volatile interest rates, and fluctuating foreign exchange rates. However, many of these risks can be reduced by purchasing insurance or by hedging in the derivatives markets.

The financial manager is usually responsible for the firm's overall risk management program, including identifying the risks that should be hedged and then hedging them in the most efficient manner.

In summary, financial managers make decisions regarding which assets their firms should acquire, how those assets should be financed, and how the firm should manage its existing resources. If these responsibilities are performed optimally, financial managers will help to maximize the values of their firms.

Hedging:

Any technique designed to reduce or eliminate financial risk; for example, taking two positions that will offset each other if prices change. A financial instrument whose value is based on another security

Derivative: