What is Finance? – Characteristics, Types, and More
What is Finance?
Finance corresponds to a financial area that studies the obtaining and administration of money, capital, and financial resources. It looks at both the obtain of these resources (financing) and the investment and saving thereof.
Financial studies are concerned with money management due to the type of decisions. It is different economic agents (the State, companies or individuals). It can take to manage their resources better, betting on their multiplication and fulfilling the corresponding objective.
These branches, in turn, are hook on a miscellaneous set of areas of application of financial knowledge.
Characteristics of Finance
Finance is characterized by the following:
- They manage money and capital goods: banking and savings, investments ( bonds, stocks, etc.), loans, etc.
- As an area of knowledge, finance is found between economics, administration, and accounting.
- They manage vital concepts such as risk, benefit, interest rate, investment costs, etc. In which describe the functioning of the world of money.
- They allow the improvement of money management for both public and private entities, individuals or families, and large corporations.
- They rely on other auxiliary disciplines, such as economics, accounting, statistics and mathematics.
Types of Finance
Finance can be classified into two major branches: public finance and private finance, It which in turn has an indispensable set of sub-branches or special.
They seek the optimization of resource management in the case of private or individual entities: SMEs, large corporations, families or individuals. They cover the following areas.
Those that have to do with personal money management: income this entails, and make joint plans for the future.
That they have to do with the management of the assets of private companies or organizations, that is, their financing decisions, their investment methods and their managerial decisions.
Public of Finance
They involve the State or the companies that the State administers and therefore are managed in unlike circumstances. They cover the area.
Fiscal policy: How a condition collects and administers the taxes it obtains from its citizens.
Public spending: That has to do with how the state invests the money it administers and in what way much money it injects back into society in the form of jobs, purchases, etc.
And Public debt: Suppose a state cannot cover its expenses and goes into debt with private sectors to keep the state apparatus running.
Public budget: It does with the projections of future expenses that a State makes, considering. Its financial, fixed costs, decision-making regarding how to spend money furthermore so on.
Family money: Spoken as the sum of the finances of the individuals who share a home and who jointly face the expenses at that moment.
Importance of Finance
Given the fundamental principle of any economy, which is that the resources available in the world are finite, while the needs that we must cover with them are infinite. It put another way: that money is not plenty to do or have everything, the importance of a field of such as business understandable.
Finance allows persons and organizations to play the game of capitalism in the best possible way. It attain the necessary resources at the right time, and keep the economic machinery running.
Waste, lousy investment, administrative clutter, and a poor decision can lead a productive and valuable initiative to its downfall. Therefore, add organization is impressive that no one today can afford to ignore.
However, economics has a much broader centers : it studies how production methods can satisfy human needs. Finance, seen in this way, focuses solely on what is related to money, and especially financial resources.
To study finances, several tools manage and analyze financial resources and their use. Here are some examples of these resources.
Accounting of Finance
Accounting can manage any collection: corporate finance, personal finance, public finance, and international finance. It is a financial resource used to manage the expenses and income of a company. It is a key tool to know what situation a company is in and, with this documentation, to find the necessary strategies to improve its economic performance.
Over time, financial institutions and their crop evolves and efficient. New intermediaries additional than traditional banks have appeared (such as portfolio management companies, collective investment institutions, etc.) and new financial products that offer many options to customers.
As for its hypothetical development, it was not until the 20th century that finance became an area of study in its own right. Its source can be founds in the works of Irving Fisher in 1897, where he refers to finance as a new discipline.
Its field of study has perfect over time, with the development of theories that try to explain. The optimal determination of the price of assets, expect profitability, decisions in uncertainty over time, financial institutions . It their products have evolved and efficient. New intermediaries other than traditional banks have appeared (such as range management companies, collective investment institutions, etc.) and new financial products that offer many options to customers.