Finance is a general term encompassing various things about the financial management, generation, and allocation of funds. It is an important part of the business world and involves a wide variety of activities, such as managing business assets, analyzing market trends, creating financial proposals, evaluating financial statements, setting up and running the business, budgeting, trading, investing, and many other aspects. The ability to efficiently manage the finances of a company is essential for its survival and growth as a successful organization. Therefore, finance is one of the most important aspects in business.
Finance is broken down into three main strands, such as investment, personal finance, and banking. Within each of these strands there is a subfield of techniques and skills, which are then used in a particular financial situation. The techniques and skills used in each of these subfields are reflected in the different types of financial information that is commonly required to perform the needed tasks.
Corporate finance refers to the strategies and methods used to raise funds for the benefit of the corporation. Common examples of corporate finance strategies are: borrowing funds from other companies, utilizing stock options, securing bank loans, purchasing businesses, orchestrating buyouts, and selling businesses. Corporate finance is often required by government agencies such as the Small Business Administration and corporations that have been acquired. Some areas of corporate finance are also the responsibility of private lenders. These private lenders often require a high level of credit worthiness and financial record before approving funding for corporate ventures.
Social finance is concerned with the use of the public sector to finance the activities of individuals and groups. Social finance is commonly used to provide healthcare, support for education, support for the elderly, support for job search and training, and support for the poor. It is an approach to public finance that attempts to improve the economic wellbeing of society at large by redirecting some of the resources currently used for traditional finance to relevant projects or issues. The scope of social finance is quite broad and includes philanthropy, worker and community development, environmental finance, investment, small business finance, venture capital, and charity. Although this form of finance has many benefits for society, it is often controversial due to the tendency for politicians to choose favored causes.
Personal finance includes making purchases and dealings in the financial market such as borrowing money, making investments, saving, paying bills, and insuring insurance and assets. Personal financial activities are most often done in pursuit of specific goals such as buying a car to drive to work in, or saving for retirement. While these goals are legitimate, the discipline of personal finance is not and should not be substituted for sound financial decisions made in the context of one’s overall financial situation. For example, saving for a down payment on a home is a wise financial decision, but would probably be a less wise decision if you borrow money to pay for it.
Finance is the field of banking that deals mainly with lending, making loans, buying and selling securities, and managing money. While most people think of banking as a place where they deposit their money to get a loan when they need it, in fact most banks invest the majority of their profits. They do this through stock market investments, derivatives, interest rate exchanges, and a variety of other financial tools. Banks are some of the most stable investments available to consumers, providing a steady source of income in times of financial crisis. Many investors use banking to help them diversify their portfolios and avoid financial risk; however, it is important to remember that the bank makes its profits through interest rates, not through direct interest or dividends paid to customers.