Defining Financial Management
Financial management is the broad aspect of planning and controlling the financial resources of a firm ( Pandey, 2015 ). The discipline is still developing having branched off from economics in the early 1890s and has become a point of interest for both managers and academicians ( Pandey, 2015 ). To understand financial management, it is paramount to understand what finance is because there can be no financial management without finance to be managed. The life cycle of an active business revolves around finance, production, and marketing. Businesses operate on tangible and financial assets, but the financial ones are valuable because they influence liquidity. Financial assets include bonds, debentures, shares, borrowings from banks and lease obligations. The financial assets are also referred to as security ( Petrov, 2011 ). These assets require proper management to ensure that the business is capably investing in activities that will result in returns such as running its production and marketing activities.
Sound Financial Management, Stakeholders, and Shareholders
Businesses exist for the sole purpose of profit-making without which a business loses its purpose and focus. The financial manager should invest in meaningful profit-making plans ( Pandey, 2015 ). Such plans may include determining prices, cost of production, and even product lines. Besides affecting the career of the financial manager, these elements influence the success of the stakeholders and shareholders such as investors, consumers, and employees. High returns can result in the increment of the employee's salary, better compensations, and even promotion. Investors go home happy that they have made a profit from their investment and consumers suffer from such events ( Petrov, 2011 ). When a company produces low-quality products to minimize cost or increases the prices to balance the cost of production the consumer is hurt. On the other hand, the consumer stands a chance of benefiting when the economies of scale are balanced properly.
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Financial markets and financial instruments
Financial markets
The financial market has everything to do with financial assets trading by households, government agencies, and businesses. Through the financial markets, the ownership of a financial asset is transferred from one entity to another (Madura, 2014). In this transaction, the buyer is the deficit unit because he/she needs money while the seller is referred to as the surplus unit having excess finance than he can spend over a short period (Madura, 2014). Therefore, the primary purpose of the financial markets is to facilitate the transfer of money from those who have surplus money to those who need the funds.
Financial instruments
Financial instruments are the instruments that enable the occurrence of a transaction in the financial markets. They can be understood as financial assets such as bonds and so on noted earlier on. The financial instruments can be classified as cash or derivative instruments (Chorafas, 2008). Cash instruments have their value in currency while the derivative instruments’ value is pegged on the worth of the bond, shares and so on. The derivative instruments have to be converted into cash to ascertain their real worth (Chorafas, 2008).
Primary and secondary markets
Primary markets refer to those markets where new securities are originally sold and bought. In contrast, secondary markets refer to markets where the securities sold in the primary markets are resold as outstanding securities (Burton, Nesiba, & Brown, 2015).
New York Stock Exchange and NASDAQ
The New York’s stock exchange market is older than NASDAQ being 224 and 45 years old respectively. Operations in the New York stock market takes place literally on the floor while NASDAQ operations are conducted electronically. While the New York stock market exchange deals with strongly established entities, NASDAQ on the other hand welcomes startup technological companies due to its lower listing fees (Smith, n.d).
Foreign exchange
Foreign exchange is all about the trade of money. It involves the exchange of a currency for another ( Weithers, 2011 ). The trade is very powerful, influencing the market, as opposed to the earlier concepts placing money as an important element rather than view money as an oil that lubricates and makes economics possible without itself being very important ( Weithers, 2011 ). Therefore, money has grown into a powerful instrument that is impossible to do away with without endangering the growth of economies.
Conclusion: Recommendation
The relationship between financial assets or instruments, financial markets, and financial management presents an intricate balance that must be closely monitored for effective financial management. The three factors should be improved since a mutual and harmonious coexistence, and operations of these elements can guarantee a company's success
References
Burton, M., Nesiba, R. F., & Brown, B. (2015). An introduction to financial markets and institutions. New York, NY: Routledge.
Chorafas, D. N. (2008). Introduction to derivative financial instruments. New York, NY: McGraw-Hill,
Madura, J. (2014). Financial markets and institutions . New York, NY: Nelson Education.
Pandey, I.M. (2015). Financial Management, 11 th Edition . New York, NY: Vikas Publishing House PVT LTD.
Petrov, K. (2011). Financial management – Lecture 01 [Video file]. YouTube. Retrieved from https://youtu.be/mX9nd0eQ-6g
Smith, R. H NYSE vs. NASDAQ. Retrieved 28 Aug. 2018 from https://www.rhsmith.umd.edu/files/nasdaq-nyse.pdf
Weithers, T. (2011). Foreign exchange: a practical guide to the FX markets (Vol. 309). New York, NY: John Wiley & Sons.
