Finance is a broad term defined in the US lexicon as the method by which an individual or company earns or manages their wealth. It also covers aspects of managing money including saving and spending it. The word is often confused with accounting which is the methodology of recording financial transactions. The difference between the two is that finance usually attempts to improve the economic performance of a nation by providing means for its citizens to access savings opportunities, while accounting attempts to achieve the same goal through the recording of financial transactions.
While finance is often thought of as the science of earning wealth, it actually has several different areas of specialization. One is risk management. In the context of finance, risk management refers to those aspects of the financial system which attempt to mitigate the risks to the lender through effective investment programs. Examples of risk management in the financial sector can be found in such areas as portfolio management, bonds, interest rates, foreign exchange, insurance, investment grade securities, and corporate bonds. There are many other risk management strategies and tools which can be applied by companies to manage the risks associated with their assets.
Another area of specialization within finance is banking. The definition of a bank is ‘a financial institution that provides loans or other forms of credit based on its holdings of assets’. Banks function as financial intermediaries by facilitating financial transactions between individuals and companies. While banks make the majority of their profits by extending credit, they also create credit by buying long term assets (such as fixed returns investments like bonds and mutual funds) and repaying these assets when the investor receives his/her capital. The most important function of banks therefore is to extend credit, rather creating it. This process is often done through borrowing.
Another specialized area of finance is in the financial services sector. Financial services include such things as insurance, investment, banking, securities, consulting, and payroll. Within the financial services sector, there are many different subtopics, including financial marketing, insurance advertising, insurance sales, mergers and acquisitions, risk management, portfolio management and much more. Within this particular sector, there are many different types of jobs available. For instance, some jobs in financial services involve working with corporate finance, financial engineering, economics, banking, auditing, risk management and/or quantitative analysis, commodity markets, international business, insurance, public sector, private sector and a whole lot more.
One of the things that distinguish Finance from other branches of Public Policy is the fact that it is not primarily concerned with producing the goods or services that consumers need. Finance is, instead, concerned with managing the public’s debts and ensuring that those debts are repaid in a timely manner. In other words, Finance is basically the management of risk. When dealing with the financing of institutions, for example, it is Finance that determines the interest rates and other charges associated with debt issuance. When it comes to debt issuance, Finance acts as the guarantor, using its vast experience and knowledge of the market, to secure the issuing institutions with the money that they need, when they need it.
There are numerous different types of jobs in Finance. Many people begin their careers as investment bankers, helping to make, and manage, investments for clients and other financial institutions. Other positions in Finance include global management, derivatives and interest rate management, credit card and loan management and public finance. A number of private sectors that gain relevant experience and knowledge in the field of Finance include mergers and acquisitions, private equity, private lending, infrastructure and development, and international business. No matter which job options you choose, if you are interested in learning about financial markets and how they work, you should certainly consider a career in Finance.