Explaining the term ‘Finance’
Finance is generally defined as “funds management” or the management of money. However, modern finance is a family of business activity which involves the marketing, organization, and management of cash. Moreover, money surrogates through the way of instruments, capital accounts, and markets created for transacting and trading assets, liabilities, and risks.
The financial system involves public and private interests in addition to the markets serving them. It provides capital from institutional as well as individual investors who transfer money either directly or through intermediaries, like banks, insurance companies, brokerage, and fund management firms, to other firms, individuals, and governments that hold resources and transact businesses.
Techniques and sectors of finance
Finance can be referred as one of the most important aspects of business management which incorporates decisions related to the use and acquisition of funds required by the enterprise. Finance is used by governments, individuals, businesses, and also by a large variety of other organizations, counting schools and non-profit organizations. In general, the aims and objectives of these aforesaid activities are obtained through the use of apt financial instruments and methodologies, with contemplation to their institutional setting.
Areas of finance
The main areas of finance include:
- Personal Finance
Decisions related to personal finance may involve paying for education, buying insurance (e.g. health and property insurance, investing and saving for retirement), financing durable goods like real estate and cars. It may also include paying loans or debt obligations.
- Corporate Finance
Corporate or managerial finance is the task of providing funds for the activities of a corporation. Corporate finance usually includes balancing risk and profitability, while attempting on maximizing the wealth and value stock held by an entity, and also generically entails three interrelated decisions – the investment decision, the financing decision, and the dividend decision.
- Finance of Public Entities
This includes finance as related to sovereign states and sub-national entities and associated public entities or agencies. The main areas included are:
- Identification of required expenditure of a public sector entity
- Revenue sources
- Budgeting process
- Debt issuance for public works projects
- Financial Risk Management
Financial risk management refers generally to the practice of creating and protecting economic value in a firm through financial instruments to manage risk exposure, specifically market risk and credit risk.