Finance is a broad term for subjects about the study, development, management, and accumulation of funds and securities. It involves all the aspects of business as a system, with an emphasis on money management and the means to achieve short-term financial goals. The concepts and areas of finance are vast and include the financial system, macroeconomics, investment, consumption, money markets, fiscal policy, risk, and portfolio management. In simple terms, finance considers how money is used to buy goods and services and how those goods and services are produced, stored, traded, and transferred between people and institutions. Fundamentally, it is the science of funds management.
Finance is the language of finance. All economic activity is viewed through the lens of finance, and the concepts and principles of modern economics are based on ideas drawn from the study of finance. This is why there is a long list of “field of study” within the discipline of finance, including investment theory, financial systems, money markets, and personal and public finance. In fact, it is safe to say that if you think about any of the recent economic books, you will find an element of finance in there.
The modern understanding of the study of finance is quite elaborate and goes far beyond simple supply and demand theory. Basically, it is an attempt to discover, understand, and optimize the processes of producing, transporting, providing, and providing services. What it really means to finance is the process by which funds are raised and expended to support economic activity. In other words, it is concerned with the purchasing power of money, which is the basis of popular equity and credit theories as well as the concept of value. The study of finance also involves the analysis of risks related to various forms of investments and the determination of appropriate strategies for dealing with them.
One of the most important parts of the study of finance is the examination of capital markets. Capital markets refer to financial systems where the supply of funds is matched with the demand in the market, thereby serving both the investors and borrowers. Basically, there are two types of capital markets: primary capital markets and secondary capital markets. Primary capital markets include financial systems such as the retail market, the wholesale market, and the foreign exchange market. Secondary capital markets include the banking system, insurance, pension, and savings and loans. In order to become an investor in any one of these markets, one must have a thorough knowledge of the operations of the particular industry involved.
Finance also deals with the creation, maintenance, allocation, and disposal of resources. As mentioned above, one of the main elements of the study of finance is the study of financial management. Finance aims to allocate resources wisely, so that their productivity can be improved. Also, finance aims to maximize profits by ensuring that taxes and other forms of income are properly allocated. By the same token, the government also plays an important role in the economic system by undertaking certain projects meant to boost competitiveness and thereby contribute to the economic well-being of the nation.
Some of the important areas of the finance field include investment banking, merchant banking, commodity markets, global economics, monetary policy, asset management, insurance, and derivatives. All of these areas of the finance field are interrelated, and thus, they cannot be covered in a short article. One must refer to specialized books or websites on the subject for more details on individual topics. Finance continues to be a dynamic and interesting field, and has countless applications in every walk of life. Indeed, no other study of human action comes close to Finance as a true scientific discipline.