Finance is a broad term for various things regarding the study, generation, and management of funds and assets. It is used to describe the process by which money is made to grow in value, so that surplus can be reinvested in different ventures. The world financial sector seeks to understand, predicting, and limiting factors affecting the supply of money, so as to meet the demand of the market, including factors like inflation.
The major areas of finance are accountancy, economics, estate, investments, bond investing, private equity, securities investing, banking, and insurance. All these subjects study the financial activities of organizations as a whole. They learn how to create financial models, how to analyze financial data, how to make financial analyses, how to create financial plans, and how to implement those plans. There are also many other subjects in the area of finance.
Some of the major areas of finance are the financial markets, money markets, banking, economics, and capital markets. Money markets deal with bank deposits, checking accounts, and savings accounts. Banking on the other hand mainly deals with savings accounts, commercial loans, and other types of short-term loans. Capital markets refers to the stock market, the commodity markets, and other financial activities.
Apart from all these areas, there are various other specialized areas of finance. One of these is corporate finance. In this field, financial analysts create business plans, as well as evaluating the worth of corporate and organizational assets and liabilities. This is done through the study of taxes, economics, accounting, management, and other such financial activities. Corporate finance is also related to investment banking, investment securities, captive public corporation, venture capital, mortgage banking, merchant banking, specialty banking, non-traditional banking, and international financing. All of these areas study how businesses are managed and how they become successful.
Public finance is the area related to governmental organizations, like the state, city, and national level. This is about the capital budget for projects of the government. This includes subsidies, interest grants, and other forms of financial interventions. Public finance also includes private finance. The study of this field primarily concerns the provision of infrastructure, like schools, roads, bridges, etc., and other forms of interventions in social sciences and engineering that serve economic development.
Economics is the branch that mainly studies the behavior of the market with respect to investment and consumption. It uses economic reasoning, which includes microeconomics, macroeconomics, and ecology. All these aspects study how the decisions of individuals and corporations are reflected in the changes in the structure of the economy.
Financial accounting deals with the recording of financial transactions in journals, ledgers, and other recorded documents. This includes control and credit risk, preparation and documentation of balance sheet, income statement, and statement of cash flow. Financial accounting is usually required for small businesses that do not need sophisticated accounting systems. Other applications of accounting to include corporate, tax, and insurance management.
The branch of economics that addresses the economic activities of a country is called microeconomics. The focus of microeconomics is on the domestic economy of a country. An important branch of microeconomics is public finance. It studies the role of public agencies and institutions in the finance and monetary policies of a country. Some examples of microorganisms that are involved in the field of finance are central banks, governments, financial institutions, organizations engaged in trading of foreign currencies, and various banking systems. These have a wide range of topics and include micro-finance such as budgeting, savings and loan, debt, mortgage, and other forms of direct financial interventions.
Another branch of Economics that is directly related to Finance is behavioral finance. Behavioral finance studies how people respond to changes in economic conditions. It also studies what triggers people to make purchases and how much they are willing to pay for those products. For example, in deciding whether to buy a new car or to rent one, people consider both the price and the benefits they get from renting. In the context of investments, behavioral Finance looks into why some forms of investment yield higher returns than others.
Another branch of Finance is called asset management. This focuses on the identification and evaluation of risks associated with financial instruments. The main function of financial management is to ensure the safety of capital by minimizing the costs of financial losses through effective capital allocation, insurance, long-term investments, and liquidation of financial assets. The main objective of financial management is to keep asset prices from falling to the level that would reduce profitability. Other roles of financial management in companies include providing advice to management on acquiring, selling, and liquidating certain types of assets, implementing policies to control access to capital, and providing incentives for employees to buy shares.
Apart from these three main and diverse areas of study, there exist many other sub-disciplines in Finance. The area of Fixed Income Investing covers issues like interest rate risk, inflation risk, portfolio stability, portfolio optimization, portfolio security, and portfolio enhancement. Another sub-field of Finance is Public Finance, which mainly deals with the administration of public finances. The field of Private Finance deals with the financing of businesses by non-financial means such as borrowing and issuing commercial paper. The last sub-field of Finance is Alternative Finance, which mainly deals with the management of the different economic situations such as oil, natural gas, gold, silver, and agricultural market.