Finance is a broad term encompassing various things about the study, development, management, and allocation of funds. It is also used to refer to the scientific study of such things as business cycles, market trends, financial markets, risk, portfolio management, exchange rates, and interest rates. All of these things are included in finance. The field of finance is a vast one and finance has been called the “language of money”. A great deal of research has gone into the language of finance and all disciplines that are connected with it have had significant input into it. A great deal of finance theory is also dedicated to accounting.
There are three main branches of finance: banking, investing, and investing in securities. Each of these fields has many sub-branches including investment banking, wealth management, insurance, public finance, derivatives, cross-party lending, and private equity. In addition, there are many other specializations within these three main branches. In general, however, each of these three main branches includes a great deal of research and literature on its own.
Banking refers to the making of loans and providing credit. Examples of banks include government banks, commercial banks, savings and loans, mortgage banking, and thrift associations. Many forms of banking have developed throughout the history of finance, including checks, drafts, money orders, credit obligations, deposit banking, and treasury bills. Historically, much of the growth of finance has come from banking, because it allowed people to obtain short-term funding more easily and at more affordable terms than through other sources. The development of banking also contributed to the development of fiscal policy and the standard interest rate. Thus, without banking, finance would have been much more difficult to develop because of the high level of governmental and private sector intervention.
The study of economics refers to the study of how people, institutions, and industries interact and influence each other in an economic environment. Economic theory and practice have developed over the years, and there are many subdisciplines within this field of study. One such subfield of economic studies is the field of macroeconomics, which studies the broad economic activities of a country or region in relation to other economic activities and historical trends. The other two major branches of economics are microeconomics, which concentrates on the microeconomics of particular industries within a country or region, and behavioral economics, which studies consumer spending habits.
The study of finance is intimately connected to the study of economic growth and prosperity. For example, effective management of finance ensures a strong economy because it enables financial institutions to provide stable financial operations. Moreover, effective management also ensures that a nation’s currency stays at a stable exchange rate, which makes imports and exports affordable. At the same time, appropriate management also means that the financial system remains free from foreign exchange risk, which can lead to serious inflation.
Many different types of organizations make use of the financial system to grow and create wealth. These include corporations, partnerships, non-profit organizations, government agencies, mutual funds, banks, and other financial institutions. Some of these organizations use sophisticated techniques such as leverage, derivatives, and securities, while others simply make use of short term funding options such as bonds, commercial paper, and savings accounts. The field of economics also covers non-traditional enterprises such as charities, labor unions, trade unions, investment funds, and insurance companies. Regardless of its subdiscipline, economics makes use of a systematic approach that examines the interrelations between economic activities, theory and praxis, institutions and policies, and individuals and their decisions.
