Finance

Finance addresses the ways in which individuals, business entities and other organizations allocate and use monetary resources over time. The term finance may thus incorporate any of the following:

  • The study of money and other assets
  • The management of those assets
  • As a verb, "to finance" is to provide funds for business.

Examples of some basic financial concepts

The activity of finance is the application of a set of techniques that individuals and organizations use to manage their financial affairs, particularly the differences between income and expenditure.
An individual or organization whose income exceeds their expenditure can lend or invest the excess. On the other hand, an individual or organization whose income is less than their expenditure can borrow, decrease their expenses, or increase their income. The lender can find a matching borrower, or can resort to a financial intermediary, such as a bank or the bond market. The lender receives interest, the borrower pays interest, and the financial intermediary pockets the difference.
A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders of different sizes to coordinate their activity.

The Application of Financial Principles to Individuals, Business, and States

Finance is used by Individuals (personal finance), by governments, (public finance), by businesses (corporate finance, ect.) as well as by a wide variety of organizations including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments, with consideration to their institutional setting.

Personal Finance

Questions in personal finance revolve around

  • How much money will be needed by an individual (or a family) at various points in the future?
  • How is that need to be funded?

Personal financial decisions involve paying for education, financing durable goods s.a. real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement.

Business Finance

In the case of a company, managerial finance or corporate finance is the task of providing the funds for the corporations' activities. It generally involves balancing risk and profitability. Long term funds would be provided by equity and long-term credit, often in form of bonds. These decisions lead to the company's capital structure. Short term funding or working capital is mostly provided by banks as line of credit. On the bond market, borrowers package their debt in the form of bonds. The borrower receives the money it borrows by selling the bond, which includes a promise to repay the value of the bond with interest. The purchaser of a bond can resell the bond, so the actual recipient of interest payments can change over time. Bonds allow lenders to recoup the value of their loan by simply selling the bond. Another business decision concerning finance is investment, or fund management. An investment is an acquisition of an asset in the hopes that it will maintain or increase its value. In investment management - in choosing a portfolio - one has to decide what, how much and when to invest. In doing so, one needs to

  • Identify relevant objectives and constraints: institution or individual - goals - time horizon - risk aversion - tax considerations
  • Identify the appropriate strategy: active vs passive - hedging strategy
  • Measure the portfolio performance

Finance of States

Country, state, county, city or municipality finance is called Public finance. It is concerned with

  • Identification of required expenditure of a public sector entity
  • Source(s) of that entity's revenue
  • The budgeting process
  • Debt issuance (municipal bonds) for public works projects
  

  • Accounting - Accountancy (British English) or accounting (American English) is the process of maintaining, auditing, and processing financial information for business purposes.
  • Advertise - Generally speaking, advertising is the paid promotion of goods, services, companies and ideas by an identified sponsor. Marketers see advertising as part of an overall promotional strategy.
  • Banking - The essential function of a bank is to provide services related to the storing of value and the extending of credit.
  • Capitalism - Capitalism generally refers to a combination of economic practices that became institutionalized in Europe between the 16th and 19th centuries.
  • Economics - Economics is the social science studying production and consumption through measureable variables.
  • Electronic Commerce - Electronic commerce or e-commerce consists of the buying, selling, marketing, and servicing of products or services over computer networks.
  • Entrepreneurship - Many "high-profile" entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business.
  • Finance - Finance addresses the ways in which individuals, business entities and other organizations allocate and use monetary resources over time.
  • Insurance - Insurance is the business of providing protection against financial aspects of risk, such as those to property, life, health and legal liability.
  • Investment - Investment is a term with several closely related meanings in finance and economics.
  • Real Estate - Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings.
  • Small Businesses - A small business may be defined as a business with a small number of employees. The legal definition of "small" often varies by country and industry, but is generally under 100 employees.