Finance is a very broad term which generally refers to financial activities related to credit, banking, investments, debt, personal assets, and money. In simple terms, finance constitutes money management. The word “finance” comes from the French word “fis,” which means money. The study of finance has many applications and disciplines. Among these are business management, tax planning, insurance, mortgage, and investing in the stock market.
Finance is intimately connected with banking. It is the part of banking that gives money its value. This process is known as “business banking.” The scope of banking is vast. It includes savings, loans, securities, commodity markets (such as the futures and options exchanges), and the role of banks in central financial systems such as the Federal Reserve System, the Central Banks of various countries, and the governments of numerous countries.
Businesses typically function through finance. They may use funds from stock markets to purchase raw materials, pay wages, buy machinery and equipment, and expand into other enterprises. They may use other financial tools, such as borrowing money from banks or issuing commercial paper, to finance expansion or acquiring other lands or properties. Through these means, businesses accumulate wealth, create jobs, earn income, and maintain a competitive edge over other businesses in the economy.
The scope of banking is broad, but there are four major functions it plays in the economy: money management, savings and loans, investment, and securities marketplaces. Money management involves the decision making process for creating and managing funds. Savings and loans refer to borrowing and lending by banks and other financial institutions. Securities markets include exchange-traded derivatives, such as stocks, bonds, and securities financing. The roles of all these financial systems interact to support the overall economic system.
A company’s finances are based on three basic functions: assets, liabilities, and equity. All other financial considerations are secondary, such as financing options, risk/reward analysis, credit quality, etc. The three functions are interrelated, and any one of them may have a significant impact on the balance sheet. Personal finance is an important part of business finance, but it is actually a subfunction of business finance.
The three main subcategories of personal finance are individuals (including employers and employees), corporations, and public sectors. In this article, we will briefly discuss the role of corporations in overall economic growth and prosperity. Corporate finance is largely concerned with long-term strategies and planning. It is also involved in the funding of large purchases, such as purchasing factories and land. It is therefore crucial that businesses properly plan for long-term success, as failure to do so can seriously damage the future profitability of a business.