TOPIC: FINANCIAL MANAGEMENT
AUTHOR: PRATIK N NIKALE
Pricing and Risk Management
CHANG et al (2024) states that during the pandemic period, COVID-19 not only led to a significant loss of human life but also brought indelible economic loss. To transfer the natural disaster risk, a variety of financial instruments written on the environmental phenomena have been developed and issued by financial institutions. The vast majority of investors (firms) face various risks and they would like to use these efficient and cheaper ways to hedge these risks and maintain their financial stability. This study extended the VP model to the MVP model assuming that the multiple underlying assets and terminal wealth follow a multivariate gamma distribution family. Based on the MVP model, this study presents the pricing formula for both basket and spread options. Furthermore, the Monte Carlo simulation method within the MVP model framework is also developed in this study to price financial instruments without closed form pricing formulas. We examine the pricing results of the basket and spread options computed from the approximate pricing formula and compare the values with those computed from the Monte Carlo simulation method. All the pricing results show that the approximate pricing formulas are accurate. For risk management, this study provides hedge ratios for market practitioners to manage their risk exposures.
The impact of quality management systems on financial performance.
KRIEMADIS et al (2022) explains that the contribution of this survey is the verification that a set of measurable quality elements and their level of implementation positively determines the impact. The number of financial performance indicators of the Greek SMEs during a financial crisis period. From the TQM SMEs quality group, in terms of their size, the micro TQM SMEs achieved the highest financial performance followed by the small TQM SMEs and the medium TQM SMEs. This is an indication that the smallest in size TQM SMEs were the ones that managed to control the selected quality elements better resulting in their improved financial performance (especially on their efficiency and solvency). The micro-SMEs flexibility and ability to adapt to changes when the economic and financial conditions impose such a change could explain that result. The micro TQM SMEs were the ones that placed higher importance on their efficiency level, followed by their solvency level. For the next quality group, the ISO SME group, in terms of their size, the micro SMEs showed the best financial performance in relation to the other groups. Similar to the previous quality group, emphasis was given on the improved efficiency and solvency level. It is important to note that the efficiency and solvency performance was emphasised by all sized groups with the micro ISO SMEs placing more emphasis on their efficiency level.
Public Financial Management and Fiscal Performance
GUI-DIBY (2022) emphasizes that the paper analyses the impact of the practical PFM dimensions on fiscal performance. Based on augmented panel data models, we conclude that internal audit and the availability of information on resources received by service delivery units contribute to improve fiscal performance. These results are confirmed by instrumental variable (IV) estimations. These results empirically stress the importance of these practical PFM dimensions that are related to transparency, to achieve fiscal performance. Those results, while offering a practical way to achieve transparency, are also consistent with the theoretical frameworks of Alesina and Perotti (1996) and Milesi-Ferretti (2003). In complementary analyses, I also find that an increase in the quality of the following specific PFM performance indicators do significantly improve fiscal performance: the classification of the budget and the transparency of inter-governmental fiscal relations.
Financial Management Practices of Indian Small and Medium Enterprises (SMEs).
SREENU (2021) explains this research paper discussed the issues related to food processing industry on qualitative and quantitative basis, with reference to financial management practices of SMEs. It is suggested that the policy formulators and practitioners should take the necessary steps to make this sector more dynamic and vibrant. Further, it is envisaged that the methodology of this study can guide the scholars to undertake similar studies on various regions. The statistics results shows that finance and accounting performance have substantial influence of SMEs effectiveness. Most of the companies in India prepared their financial statement analysis, cash flow statement, funds flow statement, balance sheet and income statement prepared frequently and frequently. Most of the businesses have employed accountant for managing. The tendency to use accounting information system was low in small medium size businesses accounting system was strong. 80% of the business followed cash management practices which include current and cash budget, evaluation of cash budget on monthly or weekly basis. Most of the small business prepare cash budget on weekly basis. This paper shows that mostly businesses are familiar to cash budgeting, cash flow and cash control. 36% business face cash shortage problematic for its disbursement while 64 % firms face cash surplus. Conclusion tells that cash surplus is major problem than cash shortage for SMEs. SCOPE FOR FURTHER RESEARCH
The study of duration and convexity in financial management.
MANGIERO et al (2020) states that numerous financial concepts include intricate equations that necessitate lengthy computations, deterring students from grasping the material. This is the situation in a normal fixed income or portfolio management course with Duration and Convexity. In an effort to streamline the topic, we have created an Excel based tool that drastically cuts down on the amount of time needed to compute duration and convexity. By doing this, you will be able to assist students in understanding how changes in the market interest rate and bond price are related, as well as how time to maturity and coupon interest rate impact this relationship. By altering the input data numerous times in a little amount of time and seeing the effects, the students will be able to use this tool to visualize the power of Duration and Convexity for estimating price changes arising from fluctuations in market yield. Since the approach outlined in this article doesn’t necessitate a comprehensive understanding of Excel, we advise its implementation in suitable financial management courses. As demonstrated, our approach effectively explains how changes in interest rates, maturity, and coupon rates impact bond pricing through duration and convexity. We want to create comparable resources for further financial management applications in education in later publications.
Financial management: more money, more problems
SPECIALE and SULLIVAN II (2019) explains acquisition and resource allocation pro-cesses are specific areas where flexibility and alternatives are needed to improve how DoD conducts business and infuses rigorous discipline in financial management. Fortunately, both Congress and the Department of defence have embraced actions to enhance and expand acquisition options .The options added to Department of defence’s acquisition toolbox in recent years represent a paradigm shift necessary to support the priorities identified in the NSS and NDS. However, if we do not similarly enhance the processes that provide and manage resources for acquisition options specifically, OTA and MTA efforts Department of defence entities will experience challenges completing acquisitions at the speed of relevance. We must continue to improve financial management laws, guidance and practices that sufficiently complement the various acquisition options if we want to achieve optimal outcomes in the new acquisition era.
Army financial management imperative
LINZEY (2019) emphasize data analytics is the convergence of math, statistics, and computer coding, all laid over a foundation of business expertise. It enables a real world understanding of the data relationships, which, when coupled with visualization techniques, makes the information easy to understand. The resulting insight is helpful to a decision maker’s ability to weigh risks and make tough choices. Success can be measured in the timeliness of the data to support decisions, clarity of communication, and accuracy of conclusions. Timely and accurate data analysis has the potential to create a high amount of value added to commanders and staffs across the Army. There are some areas within business processes and system structures that could be standardized to facilitate easier analysis of information. The data analytics process is a team effort. Some of the roles and responsibilities for taking raw data and turning it into actionable knowledge belong to the financial management (FM) community; some are outside FM. Financial managers must partner with both the non-FM data engineers, whose focus is more on the raw data and system architecture, as well as the operational leaders and commanders, who provide training and mission assessments. FM leaders must interject their functional expertise into the flow of data to help interpret the financial effect of operations. Doing this would enable Army leaders to make more timely and accurate, resource informed decisions.
Financial management role in cyber security.
SPECIALE and KENDALL (2018) explains the impact and dynamic nature of current and future cyber security-related threats on our personnel, systems and facilities cannot be overstated. A proactive and flexible approach to deter and defend against cyber security threats must involve all appropriate stakeholders; responsibilities extend to all members of the acquisition workforce, not just IT and engineering. Successful integration of cyber security into existing acquisition processes, including FM, is critical to the success of Department of defence (DoD) programs. FM community personnel, like those of the contracting community, are critical members of the acquisition team and perform vital functions to ensure program success. Department of defence will not be able to deliver effective capabilities to the war fighter for defending our homeland and allied nations against threats if we do not adequately fund cyber security requirements.
Considerations for financial management in public sector.
WALTERS and RAMIAH (2016) emphasize many organizations, and indeed Government agencies, consider risk aversion in positive terms. Risk aversion is viewed as being ‘safe’, ‘secure’ and ‘responsible’. Yet, depending on the situation being faced, in some cases, there is risk associated with being risk averse, such as failure to take action where it is required, lengthy delays in decision-making, loss of opportunities, community and stakeholder frustration, and decreased employee morale. Interestingly, the risks associated with risk aversion are often overlooked. Within the public sector, it would be naïve to assume that the public did not expect that taxpayer funds would be used ethically, transparently and appropriately; however, the community equally expects the funds to be used for priority projects and programmes. Delays in decision-making as a result of risk aversion can result in costs being protracted or opportunities being missed, leading to inefficient expenditure of funds for non-priority programmes. The good news is that there are practices that can be employed to reduce or circumvent absolute financial risk aversion to ensure a productive workforce and a profitable company. To achieve this, it is critical that executives clearly communicate acceptable levels of financial risk, expected or required returns for proposed projects or works, and ensure that employees understand the most significant risks to the organization.
Financial management within joint organizations
SAVAGE (2014) explains this article shared with the reader a discussion of the traditional Financial managers “Train, Equip, Man, Resource” within a Joint operations arena. Joint Financial managers typically enter their Joint positions with previous financial managers training, education, and development opportunities afforded them by a MILDEP or Service. Some people so trained and educated have deep knowledge, understanding, and experience within this traditional financial manager model. What happens when financial managers serve in Joint Financial manager’s positions? The answer is they have to learn the Joint Financial manager’s environment: roles, responsibilities, authorities, and doctrinal principles of Joint Financial managers. They must learn to navigate through the dynamic waters between a TEMR and Joint operations model. And Joint Financial managers organizational staffs typically are trim and assumed to leverage the CCSAs, meaning that the Joint Financial managers must take on a sophisticated level of Joint operational knowledge, skills, and abilities as there are few other people to whom work may be delegated. And that’s not all. Today’s Joint Financial managers need to oversee all elements of Financial managers requirements per Joint doctrine and also cope with so-called non-war fighting financial managers realities that call for a more professional and expert financial managers workforce. So, if you think you have what it takes to be a Joint Financial managers, know that challenges and opportunities await you.
Conclusion
The study concludes that financial management encompasses a range of activities and strategies aimed at efficiently and effectively managing an organization’s finances. This includes budgeting, forecasting, financial analysis, risk management, investment decisions, and financial reporting. The primary goal of financial management is to maximize shareholder wealth while ensuring the organization’s financial health and stability. Key aspects of financial management include optimizing the allocation of resources, managing cash flow, controlling costs, and making informed financial decisions based on analysis and forecasting. Additionally, financial management involves complying with regulatory requirements and implementing sound internal controls to safeguard assets and maintain transparency. Overall, effective financial management is essential for achieving long-term sustainability and growth for businesses and organizations across various sectors.
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