Interoduction to Financial
Maanagement
By Prof.Mustak Deraiya
What is Financial Management ?
Financial Management
means planning,
organizing, directing
and controlling the
financial activities such
as Procurement and
Utilisation of funds of
the enterprise.
Procurement & Utilisation
Procurement
Utilisation
To raise funds
from several
Soruces (At least
Applicaion of
Funds (In Effient
Manner)
Costs)
Equity + Debt
Fixed Assets +
Working Capital
Functions of Financial Management
SOURCES OF FUNDS
1) Estimation of
Capital Requirements
(ALLOCATION)
2) Determination of
Capital Composition
EQUITY
Equity Share
3) Choise of Sources
of Funds
Preference Share
Reserves
4) Disposal of
Surplus - Dividend/
Retained Profits
APPLICATION OF FUNDS
DEBT
Debentures
Bank loans
FIXED ASSETS
Land & Building
Machinery
Furniture
WORKING CAPITAL
Current Assets
Less: Current Liabilities
5) Investment of
Capital Assets
6) Management of
Cash
7) Inventory
Management
8) Receivable
Management
9) Working Capital
Management
Hedging Techniques in
Derivatives
What are Derivatives?
 A derivative is a financial instrument whose value is
derived from the value of underlying asset.
 When the price of the underlying changes, the value of the
derivative also changes.
 A Derivative is not a product. It is a contract that derives its
value from changes in the price of the underlying.
Example :
The value of a gold futures contract is derived from the
value of the underlying asset i.e. Gold.
Traders in Derivatives Market
There are 3 types of traders in the Derivatives Market :
HEDGER
A hedger is someone who faces risk associated with price movement of an
asset and who uses derivatives as means of reducing risk.
They provide economic balance to the market.
SPECULATOR
A trader who enters the futures market for pursuit of profits, accepting risk in
the endeavor.
They provide liquidity and depth to the market.
ARBITRAGEUR
A person who simultaneously enters into transactions in two or more
markets to take advantage of the discrepancies
between prices in these markets.
Types of Derivatives
Forward Contracts
(OTC)
Customised contract
between Two parties
to buy or sell an asset
at a specified price
on a future date
Future Contracts
(ETC)
Standardised contract
between Two parties
to buy or sell an asset
at a specified price
on a future date
Options Contracts
It gives buyers the right
but not the obligation to
buy or sell an underlying
asset at ft a specified
price on a future date.
Call Options
Put Options
Hedging
 A process by which risk is reduced.
 All risks can not be elimminated,
 Hedging can reduce most risk
 Some times you windup trading one risk for another
 Hedgin is typically a short term strategy to protect long
term position, as that would be costly and add more risk in
future.
HEDGING TECHNIQUES
1)
2)
3)
4)
5)
Pairing - Seeks to offset a position with a similar but not
identical
Short against the box - Shrt term hedging strategy. A
stock is hedged by short (selling the same exact stock)
Exchange traded funds (ETF) Futures Options -
Thank You