The Finance Function and Fdi
Autor: dumiya • December 2, 2013 • Research Paper • 2,128 Words (9 Pages) • 1,033 Views
The Finance Function and FDI
International Finance - Assignment 1
Before moving forward with the idea of the finance function, it is important to understand the role that finance plays in today’s world of business. Finance could be defined as the science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities. Finance consists of financial systems, which include the public, private and government spaces, and the study of finance and financial instruments, which can relate to countless assets and liabilities. The finance function could be in simple terms defined as a set of decision making used to provide the optimum benefits to all stakeholders of the company and also the company as a whole.
The Finance Function
Before moving forward with the finance function, it is important to understand the basic structure of a normal company.
The agency theory in finance
In the business world there are three main sectors of people involved in a business. They are:
1. Shareholders
2. Board of Directors
3. Management
Shareholders are the people who invested equity capital of the company and have the majority of the risk. It is important to note that in a company the board of directors are the people who have the responsibility of the strategic direction and the long time going concern of the company. Since the shareholders cannot manage the company by themselves they appoint the board of directors to represent their interest in the company. The management are the people who are involved in the day to day management of the business and are carrying out the instructions provided by the board of directors (Kurtis).
The Finance Function
The finance function consists of three different key deciding factors. They are:
1. Financing decisions
2. Investment decisions
3. Dividends decisions
As the diagram in the previous page (figure 2) shows, the three factors of the finance function are interconnected. Let’s take a company, ABC Pvt. Ltd. (hypothetically); assume that ABC is deciding on a future investment which would
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