Pablo Perez is a senior high school student.

While
studying, he works as a part-time merchandiser in one of
the supermarkets near his home. He is earning P2,000
per week. He plans to save up a portion of his earnings to
help his parents pay his college tuition fees. After six
months, he was able to save P30,000. He is contemplating
on how he can still make his savings grow.
One afternoon, after he closed his social media account,
he searched on ways on how he can still make his money
earn. He was able to research three ways: to deposit his
money in a bank; to make his money available for
borrowing; and to infuse his money as an additional
capital in their water-refilling station business.
If you were Pablo, what would you
do with the P30,000 savings for it
grow? What would you consider
in making such a decision?
All people need money to live. While it is true that the
love of money is the root of all evil, the prudent and
wise use of money can result in many good things – a
better life and a more secured future.
In the opening case, Pablo can better make wiser
decisions on how he can grow his money if he is
familiar with the financial environment where
individuals, institutions, governments, and businesses
acquire, spend, and manage their financial resources.
In simple terms, finance is the study of how the players
in the financial system acquire, spend, manage and make
other sound financial decisions concerning money and
other financial resources.
Money is anything generally accepted as a means of
paying for goods and services and for paying off debts
and liabilities.
Money performs three basic functions: (1) as a medium
of exchange; (2) as a store of value; and (3) as a standard
of value.
Generally, sound financial decisions contribute
positively to individuals, businesses, and the
economy. As such, these should be made
thoughtfully. In making sound financial decisions,
three important concepts, all else remaining equal,
must be remembered:
 More value is preferred than less
 The sooner the cash is received, the more
valuable it is
 Less-risky assets are more valuable than or
preferred over riskier assets
 To be able to manage money or financial resources.
Economic underscores that a resource is something that
is scarce. As such, they have to be managed properly to
maximize their use. This is true for money or any
financial resource, for very often, they are limited and
you do not have the luxury of opportunities to expose
them to risk. For many, the money that they will be
investing in a start-up business is the only resource that
they have and that they cannot afford not to have a fail-
safe just in case the business does not work out as
planned.
 To be able to make sound economic decisions.
Decisions being made by individuals, businesses, and
governments affect the entire economy. Due to this, they
must be able to make decisions that increase the value
of their stakeholders. Economically, a lot are at stake in
every decision they make. As discussed earlier, criteria
and considerations must be set before making financial
decisions because they influence policies that are being
instituted in these entities.
 To be able to arrive at sound personal and business
investment decisions.
This reason emphasizes that when individuals and
businesses make investment decisions, they have to do
this with much prudence. Prudence requires a careful
assessment of the situation, a consideration of the
available alternatives, and a sensitivity analysis
highlighting pessimistic and optimistic scenarios.
Moreover, a clear understanding of “what’s in it for me”
and for others result in an inclusive decision that takes
into consideration all of the stakeholders.
 To be able to understand the career path available to
finance professionals.
Knowing finance entails knowing as well the job
opportunities available to finance professionals. From
the various industries where they can start to specific
disciplines they can focus on, candidates must have a
thorough understanding of what finance professionals
do and how they can contribute to the business or to the
economy. There are career opportunities in the
commerce and industry, in the government, and in the
academe.
You can imagine yourself being on top of your
career as a finance professional. Be the Chief-
Executive Officer (CEO) or the Chief-Financial
Officer (CFO) of a global company, the cabinet
member in-charge of finance or budget and
management of the government, or the dean of
an internationally-recognized finance university.
Beginning with an end in mind, you know that
you have to start somewhere.
1. Financial Analyst – evaluating financial performance
and preparing financial plans (you may want to pursue
taking the Chartered Financial Analyst [CFA]
professional qualification exam, an international
certification)
2. Cash Management Analyst – monitoring daily cash
inflows and outflows
3. Capital Expenditures Analyst – estimating cash flows
and evaluating asset investment opportunities
4. Credit Analyst – evaluating credit applications
5. Loan Analyst – evaluating consumer and commercial loan
applications
6. Bank Teller – assisting customers with their banking
transactions
7. Investment Researcher – conducting research on
investment opportunities
8. Insurance Agent – selling insurance policies to
individuals and businesses and assisting them in the
processing of claims
9. Real Estate Agent – marketing, selling, or leasing
residential or commercial properties
10. Stockbroker – assisting clients in purchasing stocks
and bonds and building investment wealth
11. Security Analyst – analysing and making
recommendations on the investment potential of
specific securities
1. Administrative Clerk – assisting in daily unit
administration functions
2. Examiner – performing compliance field work
1. Lecturer – teaching basic finance subjects

2. Research Assistant – assisting lead researchers

in data gathering
Understanding business finance requires an
appreciation of the financial environment.
The Financial Environment is characterized by its
three interacting areas. These areas are:
(1) Financial institutions and markets
(2) Investments
(3) Financial Management
Financial Institutions are organizations or
intermediaries that help the financial system
operate efficiently and transfer funds from
depositors and investors to individuals,
businesses, and governments that seek to spend or
invest the funds in tangible assets.
These organizations provide financial services by
dealing with the management of money. They
include banks, insurance companies, and lending
institutions.
To facilitate operation and transfer of financial
resources, financial markets play an important
role.
Financial Market is a broad term that describes
any market place where trading of securities such
as shares, bonds and currencies occurs. Financial
markets take the form of either a physical or
electronic medium.
In the Philippines, we have the Philippine Stock
Exchange (PSE)
This area focuses on the decisions made by
businesses and individuals as they choose
securities for their investment portfolios.
This involves the sale or marketing of securities,
the analysis of securities, and the management of
investment risks through portfolio diversification.
It involves financial planning, asset management,
and decisions to increase the value of the
stakeholders. This area is often attributed to
business finance because it deals with decisions
concerning cash flows, including both inflows and
outflows.
Decisions can range from the strategic (like
business expansions – choosing what types of
securities to issue to finance such expansions) – to
operational (like how much cash or inventory the
business should carry). This role primarily rests on
the financial manager of the business.
FINANCIAL INSTRUMENTS AND SECURITIES
A financial instrument is any physical or
electronic document that has an intrinsic monetary
value or transfers value. This instrument gives rise
to an asset or liability depending upon which
entity you are taking. This gives rise to an asset on
the side of the holder or investor, and a liability or
equity on the side of the issuer.
FINANCIAL INSTRUMENTS AND SECURITIES
Securities are primarily issued by the corporations to
generate cash or to acquire an asset. It could either
take the form of a debt security or an equity security.
Debt security refers to corporate bonds (or liability
securities) while Equity security refers to corporation
shares. A share represents an ownership interest in a
corporation. Corporations may issue either ordinary or
preference shares.
VARIOUS FINANCIAL INSTITUTIONS OR
INTERMEDIARIES
Financial Institutions include banks, insurance
companies, and lending institutions, among others.
Banks – supervised and regulated by the Bangko
Sentral ng Pilipinas (BSP), an establishment for the
deposit, custody, and issue of money, for making loans
and for making the exchange of funds easier.
 Universal and commercial banks – represent the
largest single group, resource-wise, of financial
institutions in the Philippines. They accept deposits
and make loans to individuals and businesses. In
addition, they are authorized to engage in
underwriting and other functions of investment
houses, and to invest in equities of non-allied
undertakings.
 Thrift banks – represent non-commercial banks
composed of savings and loan associations and
microfinance thrift banks. They accumulate savings of
depositors and invest them. They also provide short-
term working capital and medium- and long-term,
financing to businesses engaged in agriculture,
services, industry and housing, and diversified
financial and allied services, and to their chosen
markets and constituencies, especially micro, small
and medium enterprises and individuals.
 Savings Banks – accept the savings of individuals and
lend pooled savings to individuals primarily in the form
of mortgage loans.
 Rural and cooperative Banks – represent the more
popular type of banks in the rural communities. Their role
is to promote and expand the rural economy in an orderly
and effective manner by providing the people in the rural
communities with basic financial services. Rural banks are
privately owned and managed while cooperative banks
are organized and owned by cooperatives or federations
of cooperatives.
VARIOUS FINANCIAL INSTITUTIONS OR
INTERMEDIARIES
Insurance Companies – supervised and regulated
by the Insurance Commission, these are companies
that offer insurance policies to the public, either by
selling directly to an individual or through another
source. Comprised of multiple insurance agents, they
can specialize in a particular type or types of insurance
such as life insurance, non-life insurance, health
insurance, or auto insurance, among others.
VARIOUS FINANCIAL INSTITUTIONS OR
INTERMEDIARIES

Lending Institutions – similar to non-banks with

quasi-banking functions, they make loans available
to individuals and businesses.
VARIOUS FINANCIAL INSTITUTIONS OR
INTERMEDIARIES
Financial Markets are physical or electronic media
that facilitate the flow of funds among individuals,
businesses, and governments. The following are the
types of financial markets and securities that may be
traded under them: (1) Money markets; (2) Capital
markets; (3) Primary markets; and (4) Secondary
markets.
Money Markets – are the markets in which debt
securities with maturities of one year or less are traded
Capital Markets – are the markets in which debt
instruments with maturities longer than one year and
equity securities are traded
Primary Markets – are markets in which financial
instruments and securities are initially offered or sold
with the proceeds going to the issuer.
Secondary Markets – are markets in which
previously issued instruments or securities are traded.
In these markets, proceeds go to the current seller
which is not necessarily the issuing corporation. The
subtypes under these markets are:
• Securities markets
• Mortgage markets
• Derivatives markets
• Currency exchange markets
• Securities markets – where previous issued debt and equity
securities are sold and traded
• Mortgage markets – where mortgage instruments or loans,
backed by real property in the form of buildings and
houses, are originated and traded.
• Derivatives markets – where derivative securities are
purchased and sold
• Currency exchange markets – also called foreign exchange
(FOREX) market where banks and institutional traders buy
and sell various currencies on behalf of businesses and
other clients
Finance is among the core functions of a business.
Depending on the size of the business, finance is
always headed by a financial manager. For smaller
businesses, this financial manager may be a
supervisor who is reporting to the business owner
and for bigger businesses, he or she may be a
vice president reporting to the president.
The task of a financial manager is to ensure that
financial decisions are made with due regard to
prudent use of financial resources in the hope of
increasing stakeholder value. Doing it in the most
honest and ethical way, increasing stakeholder
value should be underscored in the light of
corporate governance.
Corporate governance deals with the set of rules
that an entity observes when conducting business.
Good corporate governance provides stakeholders
with information on how executives or
management run the business and who is
accountable for important decisions.
There are usually two managers reporting to the vice
president for finance. They are the treasurer and the
controller. The treasurer oversees the traditional
functions of financial analysis such as capital
budgeting, short-term and long-term financing
decisions, and asset management. On the other hand,
the controller usually manages accounting, cost
analysis, and the planning. Otherwise, the functions
of these two managers also implies that their tasks
should be aligned with the financial manager’s
primary activities in an organization.
THE FINANCIAL MANAGER AND THE
ORGANIZATIONAL GOALS
A business may take any form of organization such as sole
proprietorship, partnership, or corporation.it could also be
engaging in service, merchandising or manufacturing. In
this regard, one entity’s primary goal may significantly
differ from another entity’s primary goal. But nevertheless,
one thing should be common and certain. That is to
increase stakeholder value with due consideration to the
risk and timing associated with expected cash flows.
Along this line, the objectives of the entity’s core
functions must be directed at contributing to the
achievement of this common goal. This is goal
congruence.
As the head of the finance function, the financial
manager must ensure that financial resources are being
used to increase stakeholder value. Capital budgeting,
short-term and long-term financing decisions, asset
management, accounting, cost analysis, and tax
planning must be thoughtfully carried out to achieve
such goal.
Specific, aligned, and measurable financial objectives
must be set and periodically reviewed. Financial
decisions and results of these decisions must also be
evaluated to determine if there are gaps. Thereafter,
recommendations must be made to narrow down and
eventually close out the gaps.
1. What is finance?
2. What is money? Explain its three basic functions.
3. Describe the career options available to anyone who wants to pursue finance. Which
among these options interests you? Why?
4. What is a financial instrument?
5. Why are financial institutions important?
6. What is a bank?
7. What are financial markets?
8. Is finance important to other functions of business? Why or why not?
9. Explain the importance of corporate governance.
10. Differentiate treasurer and controller.