The Role of Financing in an Organisation

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Financing plays an important role in an organization. This is so because they finance and keep record of any transaction which involves money to manage the business. Through this companies could raise funds and capital to help financing their business. Finance is a type of capital which is available in the market. For example, finance is a monetary capital for the fund raising that is available in the market. This is so because financial normally involve the amount of money and the type of market that the business is operating. To make financing of fund and capital raising , there are financial marketing available which could be useful.

Besides that, financial marketing also attain its money and capital through sales and debt of the business. Financial market involves investment that is made by an organization using any securities that they have. For example, company A represents its companies bonds and stock at financial market to earn a certain amount of capital to help financing the business operating. Financial market ensure that the economic level is stable before staring any investment. Generally, financial market is a place where interested buyers or sellers participate in the trading process of securities such as assets, bonds and stocks.

There are a few financial marketing involve in market to help finance an organizations businesses. Following are the types of financial marketing:

  1. Capital Market

Capital markets and money markets constitute the narrower definition of financial markets, other markets, such as derivatives and currency markets, are often included in the securities involved. The capital market consists of primary market and secondary market. In the primary market and stock newly issued bonds convertible and in the secondary market purchase and sale of bonds and stocks of the existing types. This market is designed for a long term investments of businesses, governments and securities that are available in the market. The investments has a maturity period of over one year.

Although stock market had undergone a number of surprises and fraud over the past decade, they have over time, developed a sophisticated institutional mechanism, by utilizing modern computer technology. Although the design of the market in the stock market has made great progress, there are continuing concerns about the speed and effectiveness of fraudulent activity that can be detected and punished. This should be the main focus of the development of the stock market.

There are also certain channels provided by capital market for those who participate in this market. Following are some of the channels involved in capital market:

Bond market. Provides financing by bond issuance and bond trading for a business that needed financial fundings. Bonds are debt investments whereby an investor loans money to an entity (corporate or governmental) that borrows the funds for a certain period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Bonds can be bought and sold by investors in credit markets around the world. This market is referred to alternatively as debt, credit, or fixed income market. It is larger in nominal stock market in the world.

The major categories of bonds are corporate bonds and municipal bonds.The environment in which the issuance and trading of debt securities occurs. The bond market primarily includes securities issued by government and corporate debt securities, and facilitate the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business development and ongoing operations.

Stock Markets. Provide funding to the stock or the issuance of shares and stock trading. Overall, capital markets facilitate the raising of capital.The stock market allows investors to participate in the financial performance of the companies whose shares they hold. When companies are profitable, stock market investors make money through dividend paying companies and by selling shares valued profit called capital gains. The downside is that the investor could lose money if the companies whose shares they hold lose money, stock prices' fell and investors sell losers.

The stock market can be divided into two major parts: the primary market and the secondary market. The primary market is where new issues are first sold through an initial public offering. Institutional investors usually buy most of the shares of the investment bank. All subsequent trading occurs in the secondary market where participants including institutional investors and individuals.They are one of the most vital areas of a market economy as they provide companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance.

  1. Money Market

Money Market facilitates short term debt financing and capital. Money market is whereby participants that are involved in short term investment. For example, borrowing or lending securities for a couple of days or a year. A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is usually seen as a safe place to put money because of the liquidity of securities and short maturities, but there is a risk in any market that investors should be aware of the risk of default on securities listed as commercial paper.

Financial instruments of the money market has a greater amount of money to come up with a short growth of traded securities. This money market allows that annual participants and investors to help raise funds for your business to suit the income is established.The securities sold in the money market are competitively priced. This is considered as a safe investment for investors trading in their company value. As for the rate of return is acceptable with a low interest rate. The growth of a stock depends on the stability of the economic level of a country. Stock exchanges provide organized market for individual as well as institutional investors.They regulate the trading transactions with proper rules and regulations.

Money Market is part of the financial markets in which instruments with high liquidity and very short maturities are traded. It's where the big financial institutions, merchants and government participate and meet their needs for short term cash.

They tend to borrow and lend money with the help of instruments or securities to generate liquidity. Due to the highly liquid nature of values and their short-term maturities, the money market is treated as safe.

  1. Foreign Exchange Market.

The foreign exchange market deepened with the opening of the economy and

establishment of an exchange rate regime based on market in early 1990. Though there

occasional bouts of volatility in the currency market, they were quickly

controlled by appropriate policy measures. Foreign Exchange Market facilitates the foreign exchange trading. The stock exchanges provide investors decide their investment priorities, providing basket of different types of securities in different industries and companies. He can sell shares of a company and buy a share of another company through stock exchange anytime. You can manage your investment portfolio to maximize your wealth.

Financial institutions and financial markets help firms raise money. They can do this by taking out a loan from a bank and repaying it with interest, issuing bonds to borrow money from investors that will be repaid at a fixed interest rate, or offering investors partial ownership in the company and a claim on its residual cash flows in the form of stock.

Task 2

A financial intermediary is typically an institution that facilitates the channeling of funds between lenders and borrowers indirectly.s. It includes savers (lenders) give funds to an intermediary (such as a bank), and that the institution gives those funds to spenders (borrowers). It is a service that provide help to individuals that needs funds or company that needs capital to operate their company. Therefore, rather than look for individuals to borrow a sum, it is more efficient to go to a bank (a financial intermediary) to borrow money. The bank raises funds from people looking to deposit money, and so can afford to lend out to those individuals who need it.

Through financial intermediaries, companies can help to raise funds to operate their businesses. It is better to loan money or capital to companies rather individuals.A financial intermediary is a financial institution as a bank, building society, insurance company, investment bank or pension funds. A financial intermediary offers a service to help an individual / company to save or borrow money. A financial intermediary helps facilitate the different needs of lenders and borrowers. There are a few financial intermediaries that are involved:

  1. Insurance Companies

If investors are interested in having a risky investment. They may want to insure against the risk of default. Instead of trying to find a particular individual to ensure of such matter, it's easier to go to an insurance company that can provide safe and help spread the risk of default. Insurance companies is able secure their buyers, sellers and investors with the safety needed by each individual. Insurance companies provide their clients with protection against a variety of risks, while pension funds manage pension funds or pension plans such as registered retirement savings plans (RRSPs), registered pension plans (RPPs), and public pension plans.

  1. Financial Adviser.

A financial adviser does not borrow or lend to you directly. They can offer expert advice on your behalf. Saves you to understand all the complexities of the financial markets and spending time looking for the best investment. In certain areas such as investing, advances in technology threaten to eliminate the (financial) intermediary. Often the mediator will have contacts in the field of expertise That will not be accessible to private individuals using a retail bank, for example.

  1. Credit Union

Credit unions are informal types of banks which provide facilities for lending and depositing within a particular community. Spreading risk is one of the benefits of credit union. Rather than lending to just one individual, you can deposit money with a financial intermediary who lends to a variety of borrowers – if one fails, you won’t lose all your funds. Also called depository institutions, these institutions accept and manage deposits and make loans. There are two types of deposit-taking institutions, chartered banks and near banks. Chartered banks are relatively large and federally regulated, while near banks are regulated by a combination of federal and provincial regulations.

  1. Mutual funds/ Investment trusts

These are mutual investment schemes. These pool the small savings of individual investors and enable a bigger investment fund. Therefore, small investors can benefit from being part of a larger investment trust. This enables small investors to benefit from smaller commission rates available to big purchases. Benefits to having mutual funds is that it has lower search costs. You don’t have to find the right lenders, you leave that to a specialist. As for the disadvantage of having this financial intermediaries is that its poor information. A financial intermediary may become complacent about spreading the risk and invest in schemes which lose their depositors money.



(in millions)



(in millions)





From RM1, the company assets generate RM 1.53 at the current assets.

Current Assets

Current Liabilities

15, 234








Current Assets-Stock-Prepaid

Current Liabilities

15, 234– 11, 330






= 10.82

= 10.82:1

From RM1, the company costs of goods sold generates RM 10.82 at its sales.


Average Stock

(37, 570)








From RM1 the company debtors generate at RM 2.95 at the debt.


Average Sales Per Day


5, 994/365







From RM1, the company sales generate at RM 0.07 at the sales.


Fixed Assets

5, 994

112, 569







From RM1, the company net sales generate at RM 0.82 at the sales.

Net Sales

Total Assets

5, 994

127, 812







From RM1, the company total liabilities generate at RM 6.98 at the liabilities.

Total Liabilities

Total Assets

127, 812

127, 812







From RM1, the company earnings before interest and tax generate at RM (874.37) at the interest and tax.

Earnings before Interest and Tax

Interest Charge

6, 691

12, 770







From RM1, the company net profit generate at RM 0.76 at the profit.

Net Profit

Net Sales

5, 584

5, 994







From RM1, the company net profit generate at RM 0.63 at the profit.

Net Profit

Total Assets

5, 584

127, 812







From RM1, the company net profit generate at RM 0.73 at the profit.

Net Profit

Capital (Equity)

5, 584

4, 324




From RM1, TNB assets generate RM 1.53 at the current assets. TELEKOM 0.58. From RM1, the TNB costs of goods sold generates RM 10.82 at its sales. TELEKOM 0.74. From RM1 the TNB debtors generate at RM 2.95 at the debt. TELEKOM 2.38. From RM1, the TNB sales generate at RM 0.07 at the sales. TELEKOM 0.05. From RM1, the TNB net sales generate at RM 0.82 at the sales. TELEKOM 0.05. From RM1, the TNB total liabilities generate at RM 6.98 at the liabilities. TELKOM 0.00

From RM1, the TNB earnings before interest and tax generate at RM (874.37) at the interest and tax. TELEKOM 0.52. From RM1, the TNB net profit generate at RM 0.76 at the profit. TELEKOM 0.93. From RM1, the TNB net profit generate at RM 0.63 at the profit. TELEKOM 0.04. From RM1, the TNB net profit generate at RM 0.73 at the profit. TELEKOM 1.29


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Dave, (2010) Financial Instruments, Financial Market, and Financial Institutions. Available from: [Accessed on 15/05/2014]

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Dr.Soubra, (2010) Money Market and Capital Market. Available from: [Accessed on 17/05/2014]

Tejvan Pettinger (2012) Functions and Examples of Financial Intermediaries. Available from: [Accessed on 17/05/2014]


Introduction to Finance.