What Is Finance?
Finance is a broad term encompassing many different things about the study, development, management and allocation of money. In particular, it refers to the questions of who, what and how an entity, business or government get the funds required for their activity or acquisition-called capital in the business context. Finance is often regarded as the part of economics that deals mainly with money, but this is not entirely true since there are other aspects of it that are important too. Finance is used in all kinds of economic activity including: transfer of payments between individuals, organizations and governments, production and consumption, management of resources and information systems.
Finance is also known as the science of money and its functions. For example, it includes price statistics, technical analysis, time value of money, banking, monetary systems and monetary policies, fiscal economics, asset pricing, economic growth and employment, financial markets, and risk. Finance has also become a major element of macroeconomic theories. These include concepts like demand theory, imperfect competition, price determination, central banks, asset pricing, asset quality, and monetary policy. All of these theories have strong connections to other disciplines such as accounting, economics, physiology, and computer science.
Finance has had a long history of developing throughout recorded time. One of the most important areas of development in terms of finance is money management and the techniques associated with it. Money management refers to the ability of banks to handle, control and invest their depositors’ money. This is done through the use of effective deposit administration techniques, efficient loan administration, and good cash management practices.
The most significant part of personal finance is credit, which is defined as the practice of borrowing money for specific purposes and/or purchases. Credit is necessary since individuals need to earn or accumulate funds to meet expenses or generate income for their families. Since individuals can easily become trapped into a vicious cycle of borrowing and spending that leads them to financial ruin, credit is considered the root cause of financial woes in society.
Corporate finance is the study and application of companies’ financial activities. This subcategory includes the purchase of goods and services and the financing of these purchases through a variety of financial transactions. Some examples of company financial activities include buying and selling of securities, issuing securities, providing investment advice, acquiring assets for employees and investing in land and property. Public financial activities are required by governments to maintain the smooth operations of the financial system. Examples of these types of activities include: obligations of the federal government, regulation of financial institutions, the assurance of payment made by insured entities, and management of nonfinancial assets such as accounts receivable and inventory.
A main article in this article discusses the responsibility of the analyst in providing timely and comprehensive financial risk management services to businesses and other organizations. The primary role of an analyst is to identify the risks to a company and develop plans or schemes to mitigate these risks. However, there are other responsibilities that analysts have, such as the preparation and approval of estimates and projections, providing management guidance, advising management on mergers and acquisitions, tax implications of company activity, preparing and communicating financial statements, analyzing the effect of discontinued operations, providing management direction, analyzing the value of stocks and derivative instruments, preparing the financial statement for reporting to shareholders, preparing financial reports, implementing strategies for long-term planning, developing and reviewing master plans, developing and implementing policies related to finance and accounting matters, and providing advice and recommendations for investors. Other areas where the services of an analyst may be needed include: estate planning, investment banking, corporate finance, venture capital, private equity, real estate, structured settlements, insurance, securities brokerage and margin trading, global economics, global business matters, health care, government, communications, architecture, law and technology.