Finance Today
What is the role of finance in a typical business?
The financial sector of a business has the task of providing the funds for a company’s activities. Generally finance includes balancing risk and profitability, while trying to maximize the company’s wealth and value of it’s stock.
What are the projections for jobs in finance of the next few years and beyond?
Right now the projections for jobs in finance aren’t looking so hot. 2008-2009 saw a big drop in the number of finance jobs available because many financial institutions have been slimming down because of the declining economy. But when the economy begins to recover their will be more jobs available as people will begin looking for someone to help them invest their money to take advantage of the growing market as well as companies hiring on people to help them manage their financial situations and as well take advantage of a growing market with more available consumers (willing to spend).
What are the key trends, developments, and challenges?
Currently the biggest challenge would be finding available jobs. Mostly what companies are looking for right now is someone who can properly help them keep afloat in the current state of economy. Some people project that because some larger financial institutions have made blunders during this economic crisis, that the government may feel more at liberty to begin closer regulations on all financial institutions; meaning (to some people I’ve talked to) the government may feel the need to regulate salaries and wages for those in the financial field – namely banks. So the challenge may be working under tighter government regulations for possibly less pay than before.
What are where are the opportunities?
Current job opportunities lay in the Risk Management sector of finance. Companies are very wary of every action they take right now. They want to know if what they will be doing will make or lose them money, so there is a need for people who can help those companies to asses their risk on various activities.
What are the opportunities for career growth?
There are varying degrees of opportunities for career growth in the different sectors of finance. According to the mentor I spoke with, Melissa Browning, there are lots of opportunities for career growth in banking if you are willing to work your hardest and really help out the institution as much as possible. She said she has seen a few people in her time working for Key Bank; work their way up in the company to do quite well for themselves. So at least in banking there are opportunities available for advancement of your career.
Finance Careers
1. Commercial Banking
2. Corporate Finance
3. Financial Planning
4. Insurance
5. Investment Banking
6. Money Management
Finance Mentor - Melissa Browning
What is a typical work day like?
Very busy. No two days are ever the same because I’m dealing with people and everybody is different and their situations are different.
How is the banking industry doing right now?
Well, it’s a much different environment than it used to be. There are a lot more rules and regulations; the lending guidelines have changed. The consumers are hurting and so people are over-drafting their accounts and not being able to pay their mortgages and such. The big banks such as ours (Key Bank) and Wells Fargo are doing a lot better than the smaller banks are. But everyone is streamlining. They are expecting more work from less people.
How is this effecting job opportunities?
Here at our bank we aren’t really hiring anyone new. There are still jobs out there but since a lot of people have cut back it’s not as easy to come by jobs as it used to be.
What then, or where are the job opportunities?
Risk Management. People are more aware now of how much risk is involved with investing their money. Investors, credit card companies, banks; they all want to know how much risk is involved in this venture or that and so risk management is still a good field to be in.
Is it hard to get starting in the banking/finance industry? How would you get started?
Get your foot in the door with a company. Work your way up from the bottom and learn everything you can. At our bank we used to offer internships, but don’t have them anymore. If you are willing to sign on with a company and tell them you will work for them for X amount of years some companies, like ours, will help pay for your education. So that’s a great way to get in; a company will want to keep you on because they are making an investment in you, and you in return are telling them that you will stick with them for a while.
What education or training/experience should someone get?
Getting your foot in the door is going to help the most. After that it really depends on what position you are applying for. I’ve seen people work their way from the bottom up while still going to school and getting an education; and I’ve seen those people do really well. And I’ve seen people who got their education and then applied for a job and have done really well. So it’s really kind of a crap-shoot.
How did you get started in finance?
I just fell into it. I used to be in nursing. I was a C.N.A. and was in the process of trying to further my education in that field, but a lot of things happened and I ended up in banking and I’ve been doing this for the last 23 years now.
What do you like most about your work/job?
The interaction with people. Working with people on a day to day basis.
What do you like the least?
The stress level, it’s pretty intense. Since the company has been streamlining we have been working leaner and meaner. Less people means more work.
What talents or skills do you think are most crucial to success in this work?
Be flexible, be willing to learn and produce. You should be able to think outside the box.
What advice would you give someone hoping to enter the finance industry?
Start at the bottom and learn everything you can. Get your foot in the door now and work your way up.
Key Finance Terms
ROI
Return on Investment. A measure of a corporation's profitability, equal to a fiscal year's income divided by common stock and preferred stock equity plus long-term debt. ROI measures how effectively the firm uses its capital to generate profit; the higher the ROI, the better.
Net Present Value
The present value of an investment's future net cash flows minus the initial investment. If positive, the investment should be made (unless an even better investment exists), otherwise it should not.
Stocks
An instrument that signifies an ownership position (called equity) in a corporation, and represents a claim on its proportional share in the corporation's assets and profits. Ownership in the company is determined by the number of shares a person owns divided by the total number of shares outstanding. For example, if a company has 1000 shares of stock outstanding and a person owns 50 of them, then he/she owns 5% of the company. Most stock also provides voting rights, which give shareholders a proportional vote in certain corporate decisions. Only a certain type of company called a corporation has stock; other types of companies such as sole proprietorships and limited partnerships do not issue stock. also called equity or equity securities or corporate stock.
Bonds
A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). Some bonds do not pay interest, but all bonds require a repayment of principal. When an investor buys a bond, he/she becomes a creditor of the issuer. However, the buyer does not gain any kind of ownership rights to the issuer, unlike in the case of equities. On the hand, a bond holder has a greater claim on an issuer's income than a shareholder in the case of financial distress (this is true for all creditors). Bonds are often divided into different categories based on tax status, credit quality, issuer type, maturity and secured/unsecured (and there are several other ways to classify bonds as well). U.S. Treasury bonds are generally considered the safest unsecured bonds, since the possibility of the Treasury defaulting on payments is almost zero. The yield from a bond is made up of three components: coupon interest, capital gains and interest on interest (if a bond pays no coupon interest, the only yield will be capital gains). A bond might be sold at above or below par (the amount paid out at maturity), but the market price will approach par value as the bond approaches maturity. A riskier bond has to provide a higher payout to compensate for that additional risk. Some bonds are tax-exempt, and these are typically issued by municipal, county or state governments, whose interest payments are not subject to federal income tax, and sometimes also state or local income tax.
Stockholders
One who owns shares of stock in a corporation or mutual fund. For corporations, along with the ownership comes a right to declared dividends and the right to vote on certain company matters, including the board of directors. also called shareholder.
Government Securities
Securities issued by a government to raise the funds necessary to pay for its expenses.
Mutual Fund
An open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. mutual funds raise money by selling shares of the fund to the public, much like any other type of company can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund. Benefits of mutual funds include diversification and professional money management. Mutual funds offer choice, liquidity, and convenience, but charge fees and often require a minimum investment. A closed-end fund is often incorrectly referred to as a mutual fund, but is actually an investment trust. There are many types of mutual funds, including aggressive growth fund, asset allocation fund, balanced fund, blend fund, bond fund, capital appreciation fund, clone fund, closed fund, crossover fund, equity fund, fund of funds, global fund, growth fund, growth and income fund, hedge fund, income fund, index fund, international fund, money market fund, municipal bond fund, prime rate fund, regional fund, sector fund, specialty fund, stock fund, and tax-free bond fund.
SEC
Securities and Exchange Commission. The primary federal regulatory agency for the securities industry, whose responsibility is to promote full disclosure and to protect investors against fraudulent and manipulative practices in the securities markets. The securities and Exchange Commission enforces, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940 and the Investment Advisers Act. The supervision of dealers is delegated to the self-regulatory bodies of the exchanges. The securities and Exchange Commission is an independent, quasi-judiciary agency. It has five commissioners, each appointed for a five year term that is staggered so that one new commissioner is being replaced every year. No more than three members of the commission can be of a single political party. The securities and Exchange Commission is comprised of four basic divisions. The Division of Corporate Finance is in charge of making sure all publicly traded companies disclose the required financial information to investors. The Division of Market Regulation oversees all legislation involving brokers and brokerage firms. The Division of Investment Management regulates the mutual fund and investment advisor industries. And the Division of Enforcement enforces the securities legislation and investigates possible violations.
Stock Markets
General term for the organized trading of stocks through exchanges and over-the-counter.
Investment Bank
An individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. investment banks also have a large role in facilitating mergers and acquisitions, private equity placements and corporate restructuring. Unlike traditional banks, investment banks do not accept deposits from and provide loans to individuals. also called investment banker.
Venture Capital
Funds made available for startup firms and small businesses with exceptional growth potential. Managerial and technical expertise are often also provided. also called risk capital.
Interest Rate
A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve policies. For example, if a lender (such as a bank) charges a customer $90 in a year on a loan of $1000, then the interest rate would be 90/1000 *100% = 9%.
Cash Flow Curve
The Cash Curve allows you to use your budget to see how you are financially progressing, and to identify areas of possible cash-flow crisis in the next 24 months.
Armed with this information you can modify your budget, re-schedule large periodic payments, and provide for all contingencies. The Cash Curve will also tell you just how much free cash you have at any time to meet unforeseen eventualities.
Essentially the Cash Curve takes your budget (and estimates of future contingencies), calculates the difference between budgeted income and expenses for each month, and adds these monthly values to the balances of selected bank, credit card and loan accounts at the start of the current month.
Successful use of the Cash Curve requires that your Accounts are correct at the start of the current month and that your budgets are as accurate as possible.
Resources
http://www.investorwords.com
http://www.bls.gov/iag/tgs/iag52.htm
