Pre Engineered Building Manufacturers Hyderabad.pptx
Finance Enterprise Management
1. The Financial Aspect of Enterprise
Management Strategy
Prof. Jo B. Bitonio, DPA
Pangasinan State University
Urdaneta City
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2. Report Goals
To better understand the Financial Aspect of Enterprise
Management Strategy, the following goals are the object of
achievement in my report:
1. To be enlightened on the role of commercial banks in regional
economic investment.
2. To understand the role of IMF / ADB and WB in global
economy and venture capital.
3. To be aware of “financial traffic lights” as an instrument of
overcoming economic insolvency of business structures.
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3. The Role of Banks in Enterprise
Management Strategy
BANKS according to Mr. Arnold J. Padilla of the
book in Philippine Financial Systems, are institutions
that receive and hold deposits of funds from others,
make loans or extend credit, and transfer funds by
written order of depositors. Depositors may be
individuals, organizations, or corporations.
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4. A BANK according to Wikipedia, July 2008, can also be defined as
a financial institution and a financial intermediary that accepts
deposits and channels those deposits into lending activities, either
directly or through capital markets. A bank connects customers that
have capital deficits to customers with capital surpluses.
Banking in the modern sense of the word according to Wikipedia can
be traced to medieval and early Renaissance , Italy, to the rich cities
in the north like Florence, Venice and Genoa. The Bardi and Peruzzi
families dominated banking in 14th century Florence, establishing
branches in many other parts of Europe. One of the most famous
Italian banks was the Medici Bank, set up by
Giovanni di Bicci de' Medici in 1397. The earliest known state
deposit bank, Banco di San Giorgio (Bank of St. George), was
founded in 1407 at Genoa, Italy.
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5. The oldest bank still in existence is Monte dei Paschi di Siena,
headquartered in Siena, Italy, which has been operating
continuously since 1472.[It is followed by Berenberg Bank of
Hamburg (1590) and Sveriges Riksbank of Sweden (1668).
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6. Banks offer many different channels to access their
banking and other services:
•
Automated Teller Machines
•
A branch is a retail location
•
Call center
•
Mail: most banks accept cheque deposits via mail and
use mail to communicate to their customers, e.g. by
sending out statements
•
Mobile banking is a method of using one's mobile
phone to conduct banking transactions
•
Online banking is a term used for performing
transactions, payments etc. over the Internet
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7. Banks offer many different channels to access their banking and
other services:
•
Relationship Managers, mostly for private banking or business
banking, often visiting customers at their homes or businesses
•
Telephone banking is a service which allows its customers to
perform transactions over the telephone with
automated attendant or when requested with telephone operator
•
Video banking is a term used for performing banking
transactions or professional banking consultations via a remote
video and audio connection. Video banking can be performed
via purpose built banking transaction machines (similar to an
Automated teller machine), or via a video conference enabled
bank branch clarification.
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8. •Banks borrow money by
•Banks borrow money by
accepting funds deposited on
accepting funds deposited on
current accounts, by accepting
current accounts, by accepting
term deposits, and by issuing debt
term deposits, and by issuing debt
securities such as banknotes and
securities such as banknotes and
bonds.
bonds.
The bank profits from the
The bank profits from the
Banks uses the above resources to
difference between the level of
difference between the level of lend money by making advances
interest ititpays for deposits and
interest pays for deposits and to customers on deposit accounts,
other sources of funds, and the
other sources of funds, and the by making installment loans, and
level of interest ititcharges in its
level of interest charges in its by investing in marketable debt
lending activities.
lending activities. securities and other forms of
money lending.
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9. Banks also face a number of risks in order to conduct their business, and how
well these risks are managed and understood is a key driver behind
profitability, and how much capital a bank is required to hold. Some of the
main risks faced by banks include:
•
Credit risk: risk of loss arising from a borrower who does not make payments
as promised.
•
Liquidity risk: risk that a given security or asset cannot be traded quickly
enough in the market to prevent a loss (or make the required profit).
•
Market risk: risk that the value of a portfolio, either an investment portfolio or
a trading portfolio, will decrease due to the change in value of the market risk
factors.
•
Operational risk: risk arising from execution of a company's business
functions.
•
Reputational risk: a type of risk related to the trustworthiness of business.
•
Macroeconomic risk: risks related to the aggregate economy the bank is
operating in.
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10. The economic functions of banks include:
1.Issue of money, in the form of banknotes and current accounts subject to
check or payment at the customer's order. These claims on banks can act as
money because they are negotiable or repayable on demand, and hence valued
at par. They are effectively transferable by mere delivery, in the case of
banknotes, or by drawing a check that the payee may bank or cash.
2.Netting and settlement of payments – banks act as both collection and paying
agents for customers, participating in interbank clearing and settlement systems
to collect, present, be presented with, and pay payment instruments. This
enables banks to economize on reserves held for settlement of payments, since
inward and outward payments offset each other. It also enables the offsetting of
payment flows between geographical areas, reducing the cost of settlement
between them.
3.Credit intermediation – banks borrow and lend back-to-back on their own
account as middle men.
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11. 4. Credit quality improvement – banks lend money to
ordinary commercial and personal borrowers (ordinary
credit quality), but are high quality borrowers. The
improvement comes from diversification of the bank's
assets and capital which provides a buffer to absorb losses
without defaulting on its obligations. However, banknotes
and deposits are generally unsecured; if the bank gets into
difficulty and pledges assets as security, to raise the funding
it needs to continue to operate, this puts the note holders
and depositors in an economically subordinated position.
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12. 5. Maturity transformation – banks borrow more on
demand debt and short term debt, but provide more long
term loans. In other words, they borrow short and lend
long. With a stronger credit quality than most other
borrowers, banks can do this by aggregating issues (e.g.
accepting deposits and issuing banknotes) and redemptions
(e.g. withdrawals and redemption of banknotes), maintaining
reserves of cash, investing in marketable securities that can
be readily converted to cash if needed, and raising
replacement funding as needed from various sources (e.g.
wholesale cash markets and securities markets).
6. Money creation – whenever a bank gives out a loan in a
fractional-reserve banking system, a new sum of virtual
money is created.
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13. According to the survey of Wikipedia, ASSETS of the largest
1,000 banks in the world grew by 6.8% in the 2008/2009 financial
year to a record US$96.4 trillion while profits declined by 85% to
US$115 billion.
Growth in assets in adverse market conditions was largely a result
of recapitalization. EU banks held the largest share of the total,
56% in 2008/2009, down from 61% in the previous year. Asian
banks' share increased from 12% to 14% during the year, while the
share of US banks increased from 11% to 13%. Fee revenue
generated by global investment banking totaled US$66.3 billion in
2009, up 12% on the previous year. All these banks are being
regulated locally and internationally by an institution of national
interest.
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14. Unlike most other regulated industries, the regulator is typically
also a participant in the market, being either a publicly or
privately governed central bank. Central banks also typically have
a monopoly on the business of issuing banknotes. However, in
some countries this is not the case. In the UK, for example, the
Financial Services Authority licenses banks, and some
commercial banks (such as the Bank of Scotland) issue their own
banknotes in addition to those issued by the Bank of England,
the UK government's central bank.
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15. The Philippine’s central bank is The
Bangko Sentral ng Pilipinas (English:
Central Bank of the Philippines)
sometimes in (Spanish: Banco Central
de las Filipinas) and abbreviated as BSP.
It was rechartered on July 3, 2004,
pursuant to the provision of the 1987
Philippine Constitution and the New
Central Bank Act of 1993. The BSP was
established on January 3, 1949, as the
country’s central monetary authority.
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16. As prescribed by the New Central Bank Act, the main
functions of the Bangko Sentral are:
1. Liquidity Management, by formulating and
implementing monetary policy aimed at influencing money
supply, consistent with its primary objective to maintain price
stability,
2. Currency issue; the BSP has the exclusive power to
issue the national currency. All notes and coins issued by the
BSP are fully guaranteed by the Government and are
considered legal tender for all private and public debts,
3. Lender of last resort, by extending discounts, loans and
advances to banking institutions for liquidity purposes Ex. Case
of Banco Filipino
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17. 4. Financial Supervision, by supervising banks and
exercising regulatory powers over non-bank institutions
performing quasi-banking functions,
5. Management of foreign currency reserves, by
maintaining sufficient international reserves to meet any
foreseeable net demands for foreign currencies in order to
preserve the international stability and convertibility of the
Philippine peso,
6. Determination of exchange rate policy, by
determining the exchange rate policy of the Philippines.
Currently, the BSP adheres to a market-oriented foreign
exchange rate policy, and
7. Being the banker, financial advisor and official
depository of the Government, its political subdivisions
and instrumentalities and GOCCs.
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18. The Central Bank is active in promoting financial
inclusion policy and is a leading member of the Alliance
for Financial Inclusion. It is also one of the original 17
regulatory institutions to make specific national
commitments to financial inclusion under the Maya
Declaration[2] during the 2011 Global Policy Forum held
in Mexico. This is one way that Central Bank participates
internationally in global economic activities. However,
let us differentiate Central Bank from Asian
Development Bank, International Monetary Fund and
World Bank because all of these banks contribute to
financing most of the development programs and projects
of a country.
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19. Over the past 6 years, ADB, through the Asian Development Fund
has:
• built or upgraded over 135,000 classrooms;
• trained over 660,000 teachers;
• built or upgraded over 44,300 kilometers (km)
of roads;
• installed or rehabilitated over 17,800 km of
water supply pipes;
• upgraded sanitation in over 269,000
households;
• improved over 1.8 million hectares of land as a
result of irrigation, drainage, and flood
management initiatives;
• installed 300 megawatts of new generating
capacity, and built or upgraded more than
34,127 kilometers of transmission and
distribution lines; and
• enabled new microfinance accounts and end
borrowers to grow to over 2.7 million.
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20. The INTERNATIONAL MONETARY FUND
OR IMF, according to the website of IMF
itself, works to foster global growth and
economic stability. It provides policy advice
and financing to members in economic
difficulties and also works with developing
nations to help them achieve macroeconomic
stability and reduce poverty.
The IMF has 188 member countries. It is a specialized
agency of the United Nations but has its own charter,
governing structure, and finances. Its members are
represented through a quota system broadly based on
their relative size in the global economy. 20
21. The IMF primarily does the following in order to
foster global growth and economic stability:
1. promotes international monetary cooperation and
exchange rate stability;
2. facilitates the balanced growth of international trade;
and
3.provides resources to help members in balance of
payments difficulties or to assist with poverty reduction.
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22. According to the World Bank Website, the World Bank
is one of the five institutions started at the Bretton
Woods Conference in Bank says that there are five key factors
The World
1944.
necessary for economic growth:
1.Build capacity: Making governments stronger and more
educated.
2.Infrastructure creation: Making laws to encourage business,
and protect individual and property rights.
3.Development of Financial Systems: Starting strong systems
that can lend and borrow in many different situations.
4.Combating corruption: Stopping corruption in
governments.
5.Research, Consultancy and Training: helping students,
academics and organizations who are interested do research
into financial affairs.
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23. The World Bank is composed of two entities :
1. IBRD - International Bank of Reconstruction and
Development. The IBRD deals with nations such as
China, South Korea, and other developing nations that are
more economically stabilized.
2.IDA- International Development Association. More
specifically, the IDA deals with the poorer nations such as
Iraq, Afghanistan, and Libya that have the potential of
being major contributors to the global economy in the
future.
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24. The focus of the World Bank is broader than that of
the Asian Development Bank (ADB), covering developing
nations the world over that are credit-worthy borrowers for
major infrastructure projects. The World Bank does not
actually deal with humanitarian issues, but specifically large
scale projects that serves regions and countries. Tax havens
Monaco and Liechtenstein, Norway, Luxembourg,*
Switzerland, and Denmark were among the highest per
capita Gross National Income (GNI) in the world in 2009,
according to World Bank Development Indicators
2010 .
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25. GNI (or gross national product in the terminology of
the 1968 United Nations System of National Accounts)
measures the total domestic and foreign value added
claimed by residents. GNI comprises GDP plus net
receipts of primary income (compensation of
employees and property income) from nonresident
sources. The World Bank uses GNI per capita in U.S.
dollars to classify countries for analytical purposes and
to determine borrowing eligibility.
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26. The International Monetary Fund and the World Bank at a Glance
International Monetary Fund World Bank
• oversees the international monetary • seeks to promote the economic
system development of the world's poorer
• promotes exchange stability and countries
orderly exchange relations among its • assists developing countries through
member countries long-term financing of development
• assists all members--both industrial and projects and programs
developing countries--that find • provides to the poorest developing
themselves in temporary balance of countries whose per capita GNP is less
payments difficulties by providing than $865 a year special financial
short- to medium-term credits assistance through the International
• supplements the currency reserves of Development Association (IDA)
its members through the allocation of • encourages private enterprises in
SDRs (special drawing rights); to date developing countries through its affiliate,
SDR 21.4 billion has been issued to the International Finance Corporation
member countries in proportion to (IFC)
their quotas • acquires most of its financial resources
• draws its financial resources principally by borrowing on the international bond
from the quota subscriptions of its market
member countries • has an authorized capital of $184 billion,
• has at its disposal fully paid-in quotas of which members pay in about 10
now totaling SDR 145 billion (about percent
$215 billion) • has a staff of 7,000 drawn from 180
• has a staff of 2,300 drawn from 182 member countries
member countries
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27. The Financial Traffic Light model should be as fair
as possible, while at the same time being a simple model that
can be applied by all companies obligated to report. In
principle, Financial Institutions are obliged to accept
measuring interest-rate risk, equity risk and real-estate risk
for both assets and liabilities without further breaking down
these three risk factors. At present, such a solution would
yield the same results as the somewhat more detailed model
being proposed in this draft. Foreign interest-bearing
securities and inflation-linked bonds would then be
considered equivalent to Swedish interest-bearing securities.
Credit risks and exchange-rate risks would then be ignored.
Such a model has the advantage of being simple and clear.
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28. However, in order to obtain a better impression of
the financial risks to which a portfolio is exposed, FI has
elected to also include simplified measurements of the
foreign interest-rate risk, the real interest-rate risk and the
credit risk. On the other hand, FI has deliberately refrained
from measuring a specific risk in equities, real estate and
credit exposures. The equity risk, however, is divided into a
Swedish and a foreign equity risk. Even the ex-change-rate
risk is treated schematically, in that the model measures the
risk as the total net exposure to all foreign currencies.
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29. The model measures how both assets and
liabilities are affected by asset price changes,
which means that it is the companies’ net risks
that are being studied. Furthermore, the model
assumes zero correlation between the various
asset classes, which means that it takes into
consideration diversification effects between
asset types. Risk reduction and risk increases
through the use of financial derivatives are
captured by the model in a simplified manner.
.
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30. The traffic light model is only one of several
supervisory tools used by FI. Since not all financial risks are
measured by the model, it needs to be supplemented by
other supervision. FI is interested in the companies’ actual
risk profile. The traffic light model is only an approximation
of the risk profile, which means that financial instruments or
investment strategies that do not result in any measurement
results in the traffic light model, despite constituting a
financial risk for the company, are not regarded as risk free
by FI. The opposite applies to financial instruments or
investment strategies that de facto reduce the risk, but whose
risk reduction is not indicated by the traffic light model.
Accordingly, the traffic light model, like other supervisory
tools, is used to sort out companies for more in-depth
investigation.
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.
31. The traffic-light model is a supervisory tool and
measures the companies’ resistance to sharp asset-price
changes over the short term. The traffic light is not an
portfolio optimization model. Neither is the model
designed to be used as an internal risk management tool.
The companies are themselves responsible for
developing models for these purposes that take their own
operations into consideration.
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