BASIC OF FINANCE

                                                     BASIC OF FINANCE 

 GOAL OF FINANCIAL MANAGEMENT : Return on investment and increase in market value per share. 

• Profit Maximization : Maximization of revenue over expenses/ minimization of expenses over revenue.
  
• Wealth Maximization: Maximization of net worth/ market value of the business/increasing the market value of equity share 
  
• Maximization of Economic Value Added(EVA): EVA = NGPAT - INTE 
• NGPAT : Net Generating profit after  tax, INTE : Interest paid on debt + fair remuneration on equity.
  
• Minimization of Risk: Risk refers to fluctuation, instability or variations in anything we cherish to obtain. Variations in sales, profit,capacity utilization., liquidity, solvency, market value and the like are referred to risk.
  
• Minimization of Cost of Capital :  Cost of Capital can be termed as the interest payable to debt capital providers, the discount for prompt payment of dues, the minimum return expected by equity investors.

TYPES OF FINANCIAL DECISIONS: 

        1. INVESTMENT                                               2. FINANCING 

•     INVESTMENT: Spending capital on assets that will yield the highest return over a desired period of time. Companies need to find the right mix between long-term and short term investment. In very short term companies need to pay bill hence all the  money can not be invested.  What specific investments to make as there is no guarantee of a return for most investments. 

        Criteria for investments : 1. maximization of value of the firm, considering the amount of risk the company is comfortable with (Risk Aversion). 2. Financed appropriately 3. If no investment opportunity satisfying creteria 1 and 2 the cash must be returned to shareholder in order to maximize shareholder value.

• FINANCING: All functions of a company need to be paid for one way or another. It is up to the finance department to figure out how to pay for them through the process of financing. There are two ways of financing an investment :  Using company's own money or by raising money from external funders.
• External funds : By taking on debt or Selling equity: Loans have cost of borrowing in the form of interest and selling equity is essentially selling part of your company. Going public means selling a part of your company to public directly instead of private investors in return of money.
  

FINANCIAL DECISION IN A FIRM: 

 1. Capital budgeting: Strategic planing including defining of business and how capital is allocated in it. Investment in buildings, machinery, godowns, factories, logistics and other long-lived assets.

 2.Capital structure : Core of financing decisions. figuring out ways and means of financing the investment plans. Rationalization of proportion in debt and equity.Allied issue is the distribution of investment policy of the firm.

3. Working capital management: Short term financial management that is day to day activities deals in current assets and current liabilities. Key issues: What is the optimal level of inventory for the operations? How much cash should the firm carry on hand? Should credit be granted to customers?

 CURRENT ASSET: Any asset which can reasonably be expected to be sold, consumed or exhausted through the normal operations of business within the current fiscal year or operating cycle or financial year.

 FUNDAMENTAL PRINCIPLE OF FINANCE: Will the decision raise the market value of the firm?

•         NET PRESENT VALUE PRINCIPLE : A business proposal whether it is new investment or acquisition or restricting raises the value of the firm only if the present value of the future stream of net cash benefits expected from the proposal is greater than the initial cash outflow required to implement the proposal / decision. 

        NET PRESENT VALUE  = PRESENT VALUE OF FUTURE CASH BENEFITS - INITIAL                                     CASH FLOW

 

    FINANCIAL SYSTEM : It mobilizes and usefully allocates scarce resources of a country. FS plays a vital role in the growth of a country.FS is a complex, well-integrated set of subsystems of financial institutions, markets, instruments and services which facilitates the transfer and allocation of funds, efficiently and effectively.

 

 

 

 

 

                                           RBI SYLLABUS

                                                              PHASE - I 

            PAPER : -  i) General Awareness, ii) Quantitative Aptitude iii) Reasoning iv) English

    

                                                              PHASE - II                       

           PAPER - I : ECONOMIC AND SOCIAL ISSUES (ESI)  

  Growth and Development – Measurement of growth: National Income and per capita income – Poverty  Alleviation  and  Employment  Generation  in  India  –  Sustainable  Development  and  Environmental issues.  

 Indian Economy – Economic History of India - Changes in Industrial and Labour Policy, Monetary and Fiscal Policy since reforms of 1991 – Priorities and recommendations of Economic Survey and Union Budget – Indian Money and Financial Markets: Linkages with the economy – Role of Indian banks and Reserve Bank in the development process - Public Finance - Political Economy - Industrial Developments in India- Indian Agriculture - Services sector in India.  

 Globalization – Opening up of the Indian Economy – Balance of Payments, Export-Import Policy –  International  Economic  Institutions  –  IMF  and  World  Bank  –  WTO  –  Regional  Economic  Co-operation; International Economic Issues. 

 Social Structure in India – Multiculturalism – Demographic Trends – Urbanisation and Migration – Gender Issues – Social Justice:  Positive Discrimination in favour of the under privileged – Social Movements – Indian Political System – Human Development – Social Sectors in India, Health and Education.            

  Suggested reference material:

• Books: Indian Economy: 1. Uma Kapila (series of books) 2. Indian Economy: Mishra & Puri (Latest Edition)  3.  Growth  and  Development:  Devraj  Ray  4.  Sociology:  C.N.  Shankar  Rao  5.  Public  Finance - K K Andley and Sundaram   

• Newspapers including Mint, Business Line, etc.

• Magazines/Periodicals/ Bulletins including RBI Bulletins, EPW, India Today, etc.  

• Reports: 1. World Development Report 2. Economic Survey of India 3. RBI Annual Report 4. Report on Trend and Progress of Banking in India. 5. IMF: World Economic Outlook
• Material sourced from RBI website

                          PAPER - II : DESCRIPTIVE ENGLISH

                Descriptive English paper

                         PAPER - III : FINANCE AND MANAGEMENT(F&M)

 a) Financial System 

 1.  Regulators of Banks and Financial Institutions 

2.  Reserve Bank of India- functions and conduct of monetary policy 

3.  Banking System in India – Structure and concerns, Financial Institutions – SIDBI, EXIM Bank,NABARD, NHB, etc, Changing landscape of banking sector. 

4.  Impact of the Global Financial Crisis of 2007-08 and the Indian response. 

 

b) Financial Markets
Primary and Secondary Markets (Forex, Money, Bond, Equity, etc.), functions, instruments, recent developments.

 c) General Topics

1. Risk Management in Banking Sector

 2. Basics of Derivatives 

3. Global financial markets and International Banking – broad trends and latest developments. 

4. Financial Inclusion

 5. Alternate source of finance, private and social cost-benefit, Public-Private Partnership

 6. Corporate Governance in Banking Sector, role of e-governance in addressing issues of corruption and inefficiency in the government sector. 

7. The Union Budget – Concepts, approach and broad trends 

8.  Inflation:  Definition,  trends,  estimates,  consequences,  and  remedies  (control):  WPI,  CPI  - components and trends; striking a balance between inflation and growth through monetary and fiscal policies.

 9. FinTech
 

Suggested reference material:

Finance

• Monetary Theory and Public Policy – Kenneth Kurihara  

• Indian Economy – Mishra & Puri  

• Economic Growth and Development – Mayer and Baldwin  

• Financial Management – Prasanna Chandra

• Major financial newspapers

• International business by Hill and Jain

• RBI Annual Report, Report on Trend and Progress of Banking in India, etc.

• Economic Survey

• Material sourced from RBI website

  

d) Management:  Fundamentals of Management & Organizational Behaviour: Introduction to management; Evolution  of  management  thought:  Scientific,  Administrative,  Human  Relations  and  Systems approach to management; Management functions and Managerial roles; Nudge theory Meaning & concept of organizational behaviour; Personality: meaning, factors affecting personality, Big five model of personality; concept of reinforcement; Perception: concept,

perceptual  errors.  

Motivation:  Concept,  importance,  Content  theories  (Maslow’s  need  theory,  Alderfers’  ERG  theory,  McCllelands’  theory  of  needs,  Herzberg’s  two  factor  theory)  &  Process  theories (Adams equity theory, Vrooms expectancy theory).

Leadership: Concept, Theories (Trait, Behavioural, Contingency, Charismatic, Transactional and Transformational Leadership; Emotional Intelligence: Concept, Importance, Dimensions. Analysis of Interpersonal Relationship: Transactional Analysis, Johari Window; Conflict: Concept, Sources, Types, Management of Conflict; Organizational Change: Concept, Kurt Lewin Theory of Change;

Organizational  Development  (OD):  Organisational  Change,  Strategies  for  Change,  Theories  of  Planned Change (Lewin’s change model, Action research model, Positive model).
Ethics at the Workplace and Corporate Governance: Meaning  of  ethics,  why  ethical  problems  occur  in  business.  Theories  of  ethics:  Utilitarianism:  weighing social cost and benefits, Rights and duties, Justice and fairness, ethics of care, integrating utility, rights, justice and caring, An alternative to moral principles: virtue ethics, teleological theories, egoism theory, relativism theory, Moral issues in business: Ethics in Compliance, Finance, Human Resources, Marketing, etc. Ethical Principles in Business: introduction, Organization Structure and Ethics, Role of Board of Directors, Best Practices in Ethics Programme, Code of Ethics, Code of Conduct, etc.  Corporate Governance: Factors affecting Corporate Governance; Mechanisms of Corporate
Governance  Communication:    Steps  in  the  Communication  Process;  Communication  Channels;  Oral  versus  Written Communication; Verbal versus non-verbal Communication; upward, downward and lateral communication; Barriers to Communication, Role of Information Technology.

 

Suggested reference material:

 Management

• Stephen P. Robbins & Mary Coulter, Management.  

• Robbins Stephen P and Judge T.A. Vohra, Organisational Behaviour

• Dessler Gary, Warkkey Biju- Human Resource Management

• Decenzo and Robbins- Fundamentals of Human Resource Management  

• Velasquez Manuel G: Business Ethics- Concepts and Cases.  

• Fernando A.C.: Business Ethics – An Indian Perspective.  

• Crane Andrew & Matten Dirk: Business Ethics

• Ghosh B N: Business Ethics & Corporate Governance