Overview of Financial ManagementChapter 1Three Areas of FinanceMoney and Capital MarketsInvestmentsManagerial FinanceMoney and Capital MarketsKnowledge in financial institutionsKnowledge of the factors that cause interest rates to rise and fallRegulations to which financial institutions are subject!arious types of financial instrumentsKnowledge of all aspects of business administrationFunctions of Investments"ales#nalysis of individual securities$etermining the optimal mi% of securities for a given investorImportance of Managerial FinanceInvolves the actual management of the firmFinancial manager generally has direct responsibility for the control processFinancial Managers ResponsiilitiesForecasting and &lanningMajor investment and financing decisionsCoordination and control$ealing with the financial marketsForms of Organi!ation"ole &roprietorship&artnershipCorporationLimited LiabilityGrowth opportunitiesLiquidityTaxed differentlyFinance Organi!ational "tructure#oals of the Corporation"tockholder wealth ma%imi'ation"ocial responsibility"tock price ma%imi'ation and social welfareAgency Relationships"tockholders and Managers"tockholders and Creditors"tockholders vs$ ManagersConflict of interests(everaged )uyout *()+, - A situation in which a group, often the firms management, uses credit to purchase the outstanding shares of the companys stock.ender offer - as offer to buy the stock of a firm directly from its shareholders.Mechanisms to motivate Managers to act in the "hareholders est interest.he threat of firing.he threat of takeover"tructuring Managerial incentivesxecuti!e stock option"erformance shareTactics against Takeover&oison &ill - #n action taken by management to make a firm unattractive to potential buyers and thus to avoid a hostile takeover/reenmail - # situation in which a firm buys back stock from a raider at a price above the e%isting market price"tockholders vs$ CreditorsRiskiness of the firm0s e%isting assets1%pectations concerning the riskiness of future asset additionsFirm0s e%isting capital structure1%pectations concerning future capital structure changes