Financial management knowledge.

Answer

Introduction

The roles and responsibilities that a financial manager is charged with depends on whether the company concerned is a public or a private company. But the main role of a financial manager is financial planning which involves budgeting and setting goals for revenues, gross profits and gross margins. Financial planning also includes setting limits for fixed and variable overhead and production expenses. Financial manager creates a master budget that is related to the organizations balance sheet, debtors and also creditors together with the company’s cash flows and profit and loss account.

Financial manager’s responsibilities involve development of internal control systems that control receipt and usage of cash. The responsibilities of developing budget variance analysis and evaluation also fall under the management of the finance department. Making investment decisions on behalf of shareholders and evaluation of the best investment opportunities are also the responsibilities of the finance manager (Williams, Haka, Bettner & Carcello, 2008).

Compliance of the legal requirements of like sales, income tax payments, federal labor requirement on wages, SEC reporting requirements and other corporate and legal requirements are the sole responsibilities of a financial manager.

1. ii) Financial markets are mostly classified according to the type of shares that the markets are dealing in. New or existing financial securities can relate to public or private placement. The securities can be long or short term maturities. New securities in the financial market are issued by companies in the primary market while the investors can later sell the investments in the secondary market. Short term securities are also referred to as money market securities while those with long term maturities are known as capital market securities. Money market securities in the US are the treasury bills which are short term debt securities that are mostly issues on batches of 13 week maturities, 26 weeks or one year. They are usually sold at a discount from their par value of $10,000 for their minimum unit sales. The other ones are commercial papers and negotiable certificates (NCDs) of deposits (Garber, 1997).

Capital market securities are mostly bonds that make up long term securities that are utilized to finance companies and also governments. In the US the treasury bonds range between 10 to 30 years but pay interest semi-annually. Treasury bonds are referred to as risk free investments as they have the backing of the federal government. Others are municipal or corporate bonds.

Financial institutions are largely commercial banks, mutual funds, insurance or pension funds that provide some form of savings for individuals or companies.

Part 1

1. a) Compliance with the federal requirements on company’s financial matters is a major role in financial management. The calculation of sales income tax payments and the implementation of the minimum federal labor requirements on wages are some of the compliance reports that the financial manager has to oversee. Securities Exchange Commission (SEC) standards of reporting of published reports requirement and other corporate legal requirements are also under the direct supervision of the finance manager. The accountants have to ensure that the accounting records comply with the SEC requirements and all the wages are paid in accordance with the requirement of the employment act while depreciation and taxes are also treated and recorded in the right way (Securities and Exchange Commission, n, d).

The decisions of financial managers influence the major policies and investment decisions that companies make. The nature and type of investment that companies undertake are largely based on the decisions of financial managers. The size of the budget and company expansion plans is made on the advice and decisions of financial managers. The main role of financial managers is financial planning. Wrong decisions on financial investment or budget would affect the company’s financial plan negatively. The evaluation of budget variances reveals the company’s setbacks that have to be addressed to ensure optimum productivity.

1b) The ethical issues relating to financial managers are concerned with individual integrity and efficiency. Managers who make wrong decisions due to personal negligence that result in huge losses to customers or those who act on inside information to advice or invest in stock markets may be held liable under the SEC act or under the Sarbanes Oxley act of the year 2002. Accounting fraud, corporate responsibility and financial disclosures can be addressed through the Public Company Accounting Oversight Board (PCAOB). Dodd Frank Wall Street and also the consumer protection Act of the year 2010 protect consumers against malpractices in trading activities of rogue companies and corrupt financial managers. The Act regulates the corporate and financial governance in all public and private companies by increasing accountability and transparency in accounting and auditing standards (Kuschnik, 2008).

1c) The PCAOB, SOX Act and the trust Indenture Act of the year 1939 were all enacted to protect shareholders, consumers and the federal government from trade malpractices of rogue company directors and managers. The PCAOB oversees the activities of all accounting and auditing firms registered in the US. The PCAOB ensures compliance with the provisions of the SOX Act as well as other SEC provisions or any other applicable law in the US that relate to corporate and financial responsibility. The securities Act of the year 1933 ensures that all investors are provided with timely and significant information regarding all securities that have been offered for sale in public while it prohibits any form of cheating, fraud or misrepresentation (Hartman, 2005).

2a) These are important financial debt and equity markets that are outside the US. The Eurobond market assists large corporations or even governments to sell or issue bonds denominated mostly in US dollars. The investors are not restricted only from US but other foreign bonds can also be issued based on a country’s home currency. The main advantage is that the equity market allows large corporations and governments to raise equity in more countries while also enabling foreign companies to sell state owned enterprises to private investors. The major disadvantage is that the bargaining power of the selling companies or governments is highly compromised as it’s a source of funding and the bond holders have all the bargaining powers.

2b) The market places are the venues where the companies raise funds through the issuance of new securities and where the purchasers can resell their securities easily. One of the major securities exchanges in the US is the New York Stock Exchange. NYSE is a tangible organization where securities are purchased and sold. NYSE deals mostly in very large US publicly traded corporations. The other market place is linked to over the counter exchange through the National Association of Securities Dealers Quote also known as the NASDAQ. The system is intangible and provides a market for companies that have not been listed in other organized exchanges but it’s the primary market for issuance of new public shares. The NASDAQ would be the best market for private investment as NASDAQ is relatively automated hence the securities of the major companies that are performing well can be easily monitored.

2c) The various investments products in the US are the treasury bills which are short term debt securities that are mostly issues on batches of 13 week maturities, 26 weeks or one year. They are sold by the US treasury. The other ones are commercial papers that are issued by credit firms that are well known in the market and serves as an alternative source of fund just like applying for loans from banks. They are issued at a discount but unlike treasury bills there return rates are higher as they are exposed to default risks. Negotiable certificates (NCDs) of deposits are largely the same as the commercial papers and the treasury bills but NCDs have higher returns, pay interest and are never sold on discount. They are issued by financial institutions (Gitman, 2000).

Treasury bonds are issued by the government and they are referred to as risk free investments as they have the backing of the federal government. Treasury bonds enjoy a huge secondary and primary market. Municipal bonds are sold by municipalities and they can be revenue or obligation bonds. The interest from municipal bonds is tax exempt. Corporation bonds in capital markets are issued by corporations and they have maturities ranging from ten to thirty years.