DAVAO DEL SUR STATE COLLEGE
DEPARTMENT OF ACCOUNTING INFORMATION SYSTEM
Introduction to
Financial
Management
MGT 606
- 2B
WRI T T EN RE PORT
Lesson 1
ARQUILLANO, ANGEL MAE
CAMPANER, JANA JEA
CLARITO, JIMA
Lesson 2
CARPE, JAY PAUL
GAMALI, KIMBERLIE
HAMOY, CHRISTINE
SANDOY, JELIAN
Submitted to:
NEIL SHANE D. NGOJO, LPT, MBA
JANUARY 23, 2026
Lesson 1: Goals and Function of Finance
Learning Outcomes:
At the end of this lesson, you will be able to:
• define finance through various scholarly perspective; and
• identify the goals and functions of finance.
Introduction:
Do you know what finance is? How does financial management play a vital role in managing a business
enterprise? Why might you benefit from studying finance concepts? Finance is one of the key factors in the
success or failure of any business. Having in-depth knowledge of financial concepts, tools, and techniques is
essential for anyone managing a business. It is important for managers to know how to appropriately acquire,
allocate, and utilize funds for the business. No matter how small or large a business is, it cannot survive
without finance. This lesson highlights the goals that guide financial decisions and the functions performed
by financial managers.
Activity: Simple Reflection
Think of your daily allowance or personal money. List at least three ways you usually spend your money in a
day. Identify which expense is most important and explain why you chose to prioritize it.
Guide Question: How does proper money management help you meet your daily needs?
Analysis
The activity demonstrates how finance is a part of everyday life. Organizations, like individuals, must decide
how to distribute their limited financial resources. Individuals and organizations may fail to meet their
demands and duties if their finances are not properly managed.
Abstraction
Finance may be defined as the art and science of managing money. It includes financial service and financial
instruments. Finance also is referred as the provision of money at the time when it is needed. Finance function
is the procurement of funds and their effective utilization in business concerns. The concept of finance
includes capital, funds, money and amount. But each word is having unique meaning. Studying and
understanding the concept of finance become an important part of the business concern.
Finance
As stated by Khan and Jaine, finance is the art and science of managing money. It means that finance involves
both skill (art) and systematic knowledge (science). It is an art because financial decisions require experience,
judgment, and careful planning. It is also a science, as it uses principles, theories, and methods to manage
effectively the money.
The word "finance" signifies management of money, according to the Oxford dictionary. This perspective
emphasizes the basic and practical role of finance, which is planning, using, and controlling money to meet
the needs and goals. It focuses on how money is handled in daily life, businesses, and organizations.
According to the Ninth New Collegiate Dictionary, finance is actually the science or study of the management
of funds as being the system that includes the circulation of money, the granting of credit, making investments,
and the providing of banking facilities. This highlights finance as a formal field of study that covers financial
systems, institutions, and activities that support economic and business operations..
Goals of Finance
Maximizing the present price of the company's equity shares is the aim of finance. However, the current price
of equity shares should not be maximized by manipulating the share prices. Rather, it should be maximized
by making efficient decisions that are desirable for the growth of a company and are valued positively by the
investors at large. A decision is considered efficient if it increases the price of a share but is considered
inefficient if it results in a decline in the share price.
In other words, the goal of finance is to maximize the wealth of the owners of the company, that is, the
shareholders. However, the current price of equity shares should not be maximized by manipulating the share
prices. The financial manager needs to pinpoint the investment opportunities, methods of financing, and
strategies for managing different elements of working capital that will ultimately enhance the value of equity
shares. If shareholders are gaining, it implies that all other claimants (such as creditors, employees, and
lenders) have been duly paid. Effective procurement and efficient use of financing result in the company
concern using the funds appropriately. It is an important part of a financial manager’s job. Hence, the financial
manager must determine the main goals of financial management.
Goals of finance may be broadly divided into parts such as profit maximization and wealth maximization:
WEALTH
PROFIT
GOALS
Profit maximization- The main of any economic activity is to generate profit. The primary goal of any
economic activiy is to generate profit. The primary goal of a company enterprise is also to make money. Profit
is a metric used to assess a company's level of commercial efficiency.
The following crucial components make up profit maximization:
1. Profit maximization is also called cash per share maximization. It helps to maximize business operations
for profit.
2. Since making money is the company's ultimate goal, it takes into account every strategy to boost its
profitability.
3. Profit is a measure of a company's effectiveness. Thus, it displays the business concern's complete position
4. The objective of maximizing profits aids in lowering the company's risk.
Wealth maximization - incorporates recent advancements in the industry. Wealth refers to either shareholder
wealth or the wealth of individuals involved in the firm.
Wealth maximization is also called value maximization and net present worth.
Stockholder’s current wealth in the firm = (No. of shares owned) * ( Current stock price per share)
The higher the stock price per share, the greater will be the shareholder’s wealth. Therefore, a company
should aim to increase its current share price, which in turn increases the value of shares in the market.
Maximum Maximum Maximum Current
Utility stockholder’s wealth Stock price per share
Functions of Finance
This refers to the activities involved in planning, obtaining, managing, and controlling financial resources of
an individual, business, or organization. These functions ensure that money is available when needed, used
efficiently, and properly monitored to achieve financial goals. Through finance, decisions are made regarding
how funds are raised, where they are invested, how risks are managed, and how profits are distributed.
Effective financial functions help maintain stability, support growth, and ensure long-term sustainability.
1. Investment Decision—This function involves deciding how funds should be invested in assets,
projects, or opportunities that will generate income or future benefit. Proper investment decisions help
maximize returns while minimizing risks.
Ex. A business decides to buy new machines to increase production instead of keeping the money
idle.
2. Financing Decision—Financing focuses on determining the best sources of funds, whether through
savings, loans, or issuing shares. The goal is to raise funds at the lowest cost while maintaining
financial stability.
Ex. A company borrows money from a bank to expand operations instead of issuing new shares.
3. Dividend Decision—This involves deciding how much profit should be distributed to owners or
shareholders and how much should be retained for future use.
Ex. A company distributes part of its profit as dividends to shareholders and keeps the rest for business
expansion.
4. Financial Planning and Budgeting—Finance helps plan future income and expenses to ensure that
funds are available when needed.
Ex. A student prepares a monthly budget to allocate allowance for food, transportation, and school
supplies.
5. Control and Monitoring—This function ensures proper use of funds by tracking expenses, analyzing
performance, and preventing misuse or losses.
Ex. A company reviews its monthly expenses to make sure money is spent according to the budget
and to prevent overspending.
Conclusion
Finance is a vital part of both everyday life and business operations. It guides how money is acquired,
managed, and utilized to meet needs and achieve goals. Through various scholarly perspectives, finance is
understood as both an art and a science, requiring judgment, experience, and careful planning, as well as the
use of principles and systematic methods. The goals of finance, particularly profit maximization and wealth
maximization, are efficiency, growth, and long-term sustainability. Meanwhile, the functions of finance, such
as investment, financing, dividend decisions, planning, and control, ensure that resources are used wisely and
responsibly. Overall, understanding finance enables individuals and organizations to make informed
decisions, manage limited resources effectively, and achieve stability and success in the long run.
References:
Brigham, E. F., & Ehrhardt, M. C. (2020). Financial management: Theory and practice (15th ed.). Cengage
Learning.
Gitman, L. J., & Zutter, C. J. (2019). Principles of managerial finance (14th ed.). Pearson Education.
Khan, M. Y., & Jain, P. K. (2012). Basic financial management (3rd ed.). McGraw-Hill Education.
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of corporate finance (13th ed.).
McGraw-Hill Education.
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Plagiarism Certificate (≤8% similarity)
Lesson 2: Financial Instruments and the Role of Financial Manager
Learning Objectives
At the end of this module, the learners will be able to
1. Define financial management and its importance in business.
2. Identify the different types of financial instruments.
3. Explain the basic role of the financial manager in an organization.
Learning Outcomes
Upon completion of this module, the learners can:
1. Demonstrate understanding of financial management concepts.
2. Classify financial instruments according to their types and purposes.
3. Describe the functions and responsibilities of a financial manager.
Introduction
There are tools and people on which every one of those financial decisions depends. As businesses
follow their transactions and projects through the paths of operations, growth, and planning, they utilize
financial tools to transfer, assign, and protect funds. These instruments help determine where resources flow
within the financial system.
Between these two extremes lies the financial manager, whose job it is to select and control
instruments, which serve as tools for achieving the goals of the organization. This reading is designed to
provide a better description of these tools and what the financial manager does, specifically, how those
decisions are made in a company.
Activity: Simple Reflection
Think about a time when you wanted to purchase something but didn’t have much money. How did you decide
whether to spend the money or save it?
Guide Question: How can being smart about your financial decisions, just like a financial manager, help you
make good decisions about your money and prevent problems from happening in the future?
What are Financial Instruments?
A financial instrument is a formal agreement between two parties that involvesmoney or financial
value. It represents an asset that can be traded, exchanged, or settled based on agreed-upon terms. Financial
instruments are anything that has monetary value and is used or traded in financial markets (Cleartax, n.d.).
Types of Financial Instruments
1. Cash Instruments
Cash instruments are financial assets whose value depends on what’s happening in the market and can
be exchanged or settled right away, or within a short period. They show direct ownership or a claim to
something with real value, and their price changes based on current conditions. Examples of these include
stocks, bonds, money, bank accounts, and actual physical goods. According to the Corporate Finance Institute,
cash instruments are financial items that are immediately influenced by market conditions, such as bonds,
stocks, loans, deposits, and checks.
What’s the purpose of cash instruments?
Cash instruments are designed to offer liquidity and secure short-term funding, enabling individuals
and institutions to manage their cash flow with low risk and easy access to capital. These instruments often
include money market instruments, characterized by short-term maturities, high liquidity, low risk, predictable
returns, and ease of evaluation.
The key types of money market instruments are:
1) Treasury Bill (T-Bills)—are short-term debt securities issued by the government to raise funds.
2) Commercial Paper—is an unsecured short-term debt instrument issued by corporations to cover immediate
expenses.
3) Certificate of Deposit—is a time deposit from banks that has a fixed interest rate and maturity date.
4) Repurchase Agreement—is a short-term borrowing arrangement where one party sells securities to another
party with a promise to buy them back at a set price on a future date.
Advantages:
• Low risk
• High liquidity
• Easy to understand
• Suitable for conservative investors
Disadvantages:
• Low return
• Limited profit potential
• May not keep up with inflation
2. Derivative Instrument
A derivative is a kind of financial tool whose value is based on the price changes of another asset, like
stocks, bonds, money, goods, interest rates, or market indexes. Basically, it’s an agreement between two or
more people, and its value comes from another financial item (Collin, 2021).
Purpose of Derivative Instruments
The purpose of derivatives is to reduce or manage financial risk stemming from price fluctuations, to
attempt to generate profits based on expected price movements, and to take advantage of price differences
across different markets.
Types of Derivative Instruments
1)Forward Contracts—are agreements made by two parties to purchase (or sell) assets in the future for a
specified price.
2)Futures Contracts—are like forward contracts but are standard (the terms are established, and they can be
bought/sold on exchanges).
3)Options Contracts – give one party the right (but not obligation) to either purchase or sell an asset in the
future for a price that was agreed upon in advance, with this ability being valid for a certain amount of time.
4) Swaps—are contracts that require two parties to pay each other money as determined by the terms of the
agreement regarding differing financial variables.
Advantages of Derivative Instruments
• Helps manage financial risk
• Provides price stability
• Enhances market efficiency
• Offers opportunities for profit
Disadvantages
• Can be complex and difficult to understand
• High risk if used improperly
• Potential for large financial losses
3. Foreign Exchange Instruments
Commonly referred to as the Forex Market, they are financial instruments that represent positions on
the foreign exchange market. Primarily, these are currency agreements and derivatives.
Type of Foreign Exchange Instruments
1. Spot Transactions – are direct exchanges of currencies at the then prevailing market rate (the spot
rate). These typically settle within two business days, use the current exchange rate, and are common for
everyday currency exchanges.
Example: A traveler exchanges Philippine pesos for US dollars at the bank using the
current exchange rate.
2. Forward Foreign Exchange Contracts—are agreements to exchange currencies at a pre-agreed rate
at some point in the future. These contracts are customized agreements, used to hedge against exchange rate
risk, and are not traded on exchanges.
Example: An importer locks in an exchange rate today to pay a foreign supplier after
three months.
3. Foreign Exchange Futures—are standardized contracts to buy and sell a fixed quantity at a future
time on an exchange. These contracts are traded on organized exchanges, have a standard contract size and
maturity date, and carry lower default risk.
Example: An investor buys a currency futures contract expecting a rise in the value of
the euro.
4. Foreign Exchange Options—are contracts that give the buyer the right, but not the obligation, to
buy or sell a currency at a specified exchange rate on or before a particular date. These options allow holders
to enter into a foreign exchange transaction at a predetermined rate.
There are two types of foreign exchange options:
• Call Option – right to buy a currency.
• Put Option – right to sell a currency.
Example: A company buys an FX (foreign exchange) option to protect itself from
unfavorable currency movements.
5. Currency Swaps—are agreements between two parties to exchange principal and interest payments
in different currencies. These swaps are typically long-term agreements used by governments and corporations
to help manage currency and interest rate risk.
Example: Two companies from different countries exchange loan payments in their
respective currencies.
Why do foreign exchange instruments matter?
a. It supports international trade and investment;
b. It helps businesses to manage exchange rate risk;
c. It improves liquidity in the global market.
d. And enable businesses to plan their future cash flow.
Advantages of Foreign Exchange Instruments
• Helps protect against currency fluctuations
• Provides flexibility in international transactions
• Supports global economic activities
Disadvantages of Foreign Exchange Instruments
• Exchange rate volatility can cause losses.
• Some instruments are complex.
• Requires knowledge of global markets
What is a financial manager?
Strategic planning and organization are traditionally the responsibilities of financial managers.
Financial management involves developing and implementing business and administrative strategies that help
an organization to manage its resources and assets effectively. These financial experts should have a grip on
the big picture of a company’s financial condition. This can often involve the timing of a company’s finances,
for example, and forecasting potential investments. They also address tax matters and recommend ways to
boost income. Meanwhile, the position has transitioned from a back-office operation to the core of strategic
management in business administration.
What is the role of a financial manager?
Responsibilities in financial management for these professionals are as varied as the industries and
markets in which they work, generally including:
-Compiling financial statements, reports, business activity reports, and forecasts to show a company’s current
financial position.
-Tracking a company’s planned versus actual results with a view to identifying, explaining, and correcting
variances if an issue arises.
-Overseeing employees who maintain the group reporting package and budgeting models, ensuring data
integrity across databases operated by other functional teams.
-Formulating long-term tax strategies to minimize liability while aligning with global accounting structure.
-Controlling costs and making decisions that will profit your business over time.
-Tracking the market trends for viability and profitability.
To fulfill these responsibilities effectively, financial managers need a combination of skills, experience, and
know-how. You might also benefit from soft skills, like communication, problem-solving, and decision-
making.
How to become a financial manager?
With the combination of education, experience, and professional certifications, you may be able to choose
between various finance manager roles.
1. Earn a college degree.
Regardless of the specific financial management role you’re seeking, almost all employers will require
at least a bachelor’s degree in business, economics, finance, or a relevant discipline. With a business and
finance degree, you will have an understanding of the concepts and develop the skills to use these ideas in
problem solving. Similarly, a Bachelor of Science or financial planning certification or course in small business
financial management can provide strong principles. The link to an online business degree may be better in
that it allows you to remain employed while working toward a degree and gives you access to a larger pool of
professionals.
2. Gain work experience.
After you have received an education and some initial experience, find entry- level positions at a bank,
investment firm, or similar institution. You’ll probably gain a deeper technical understanding of financial
planning, products, and services. Those who will volunteer have the chance to network and make contacts
within the industry, especially if they already do counseling with clients about their finances.
Careers related to finance
As stated by the U.S. Bureau of Labor Statistics (BLS), aside from acquiring a bachelor’s degree,
financial managers must also possess at least five years of experience in a related field, including being an
accountant or a financial analyst. These jobs can be considered as stepping stones in becoming a finance
manager or can be related jobs if they are more desirable career paths. Let us take a brief look at both.
Accountants
Accountants and auditors are responsible for preparing and analyzing financial statements, as well as
finding potential opportunities and risks, along with solutions. One of the responsibilities of accountants and
auditors is to make sure that financial statements are in compliance with laws and regulations, as well as to
find potential risks of fraud. Although a bachelor’s degree is required, some of the key skills that are required
for this position include math skills, attention to detail, analytical skills, and communication skills.
Financial analysts
Financial analysts assist businesses and individuals in making financial decisions, for example, how to
spend money in order to make a profit. They can also analyze financial statements to get the overall worth of
their client. Bachelor’s degrees are required to pursue this career. However, analytical skills, communication
skills, and decision-making skills are also essential for this career, as well as being detail-oriented.
Different types of financial managers
Financial managers play a crucial role in managing an organization’s financial resources and financial
instruments. Their duties depend on their area of specialization, but all work towards ensuring financial
stability, profitability, and proper decision-making (Brigham & Ehrhardt, 2020).
Finance Manager
The finance manager is responsible for the overall financial activities of the organization. This includes
financial planning, budgeting, management of cash flows, and financial reporting. The finance manager
ensures that financial resources are utilized effectively and in line with the goals of the organization (Gitman
& Zutter, 2019).
Investment Manager
The investment manager’s role is to oversee the investment of funds in financial instruments such as
stocks, bonds, and other securities. The primary objective of the investment manager is to maximize returns
while taking into consideration the level of risk that the organization is willing to undertake (Ross, Westerfield,
& Jordan, 2022).
Risk Manager
The risk manager identifies and assesses financial risks that could impact the organization, such as
market risk, credit risk, and interest rate risk. The risk manager formulates plans to reduce possible losses and
ensure the financial position of the organization is secured (Brigham & Ehrhardt, 2020).
Treasury Manager
The treasury manager’s key area of focus is the management of cash and liquidity in the organization,
as well as short-term financial instruments. The treasury manager’s responsibility is to ensure that the
organization is able to fulfill its financial commitments and has sufficient liquidity to meet its day-to-day
operations (Gitman & Zutter, 2019).
Conclusion
In conclusion, financial management is essential for the stability, growth, and sustainability of an
organization. As this discussion illustrates, it’s clear that financial instruments help businesses and individuals
to manage funds and allocate resources in a more efficient manner while controlling risk. Cash instruments,
money market instruments, derivative instruments, and foreign exchange instruments fulfill different roles
based on the financial requirements and sinking fund horizon of investors and depository participants. Besides,
in planning, organizing, directing, and controlling the financial activities of the firm, the importance of the
financial manager is paramount. Through sound investment, financing, and dividend decisions, the financial
manager ensures that a company achieves its goals while remaining financially healthy. Encompassed by this
study are financial instruments knowledge and the financial manager’s roles as cornerstones for successful
decision-making.
References
Brigham, E. F., & Ehrhardt, M. C. (2020). Financial management: Theory and practice (15th ed.). Cengage
Learning.
ClearTax. (n.d.). Financial instrument. ClearTax. Retrieved January 23, 2026, from
[Link]
Corporate Finance Institute Corporate Finance Institute. (n.d.). Financialinstrument. Corporate Finance
Institute. [Link]
Collin, V. (2021, September 24). Derivative financial instruments. Financial Edge Training.
[Link]
Gitman, L. J., & Zutter, C. J. (2019). Principles of managerial finance (14 th ed.). Pearson Education. Ross, S.
A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of corporate finance (13th ed.). McGraw-
Hill Education.
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