Finance is an umbrella term for various things regarding the study, development, management, manufacture, and distribution of assets and financial investments. Some of the most important financial activities are interest on loans and other advances, business financing, investing in businesses, making purchases, and saving or earning income. There are many different aspects of finance that vary according to the area of study, the purpose of the study, and the types of instruments used to evaluate the risk and reward of financial ventures.
The study of finance is the system through which money is lent, secured, and collected. Therefore, the term “finance” refers to the science of money management. This science is best expressed in the areas of banking, capital markets, and insurance. These three branches of modern finance are essential for the efficient management of the nation’s capital.
Banking refers to the process by which money is lent from one financial institution to another. Examples of banks include savings and loan associations, commercial banks, credit unions, mortgage companies, and insurance companies. Capital markets refer to those institutions that purchase financial goods (such as government bonds) and sell financial services (such as securities trading). These institutions are primarily engaged in the buying and selling of financial goods and services; however, they also facilitate the lending of money. Capital markets regulate the supply and demand of financial goods and services in the economy. In addition to regulating the supply of financial services, capital markets also serve as a source of information about current interest rates and other monetary policy decisions.
Public finance is the study of how public institutions make fiscal decisions. Public institutions that are involved in the process of creating, raising, and managing public funds include the Federal government, state governments, municipal governments, special interest groups, nonprofit organizations, international financial institutions, charities, and the stock market. Private sectors that are heavily involved in the production, distribution, preservation, monitoring, management, and distribution of resources include the oil and gas sector, the defense industry, banking, insurance, and finance. Public finance theory suggests that public institutions should use the knowledge, resources, and expertise they have available to them in order to maximize their revenue and avoid borrowing too much or spending too much money. Public institutions also utilize a wide range of financial strategies to pursue their goals; some of these strategies are called monetization, inflation management, long-term investment strategies, and short-term financing strategies.
The study of public finance helps us to better understand the causes of economic activity. It also sheds light on how changes in public spending, interest rates, tax policies, and other economic factors affect individual households, companies, and the nation as a whole. This is critically important in the current climate where many economic indicators are showing worrying signs. As Albert Einstein once asked, “What is the use of education, if people don’t know how to spend it?”
Students seeking a career in finance will need to take courses in economics, accountancy, public finance, risk management, portfolio theory, and investment. These classes will help students learn about the global financial markets and how different actors within those markets interact. They will learn about macroeconomic concepts such as inflation, deflation, balance of trade, and globalization. They will also gain insight into the day-to-day decisions that corporate managers and households make concerning their finances. Graduates with an accounting degree or any other discipline that allows them to analyze and interpret financial data will also be prepared for a career in finance. A degree program combined with a strong personal interest in finance and a commitment to learning about and applying new methods and concepts that have been developed through time will prepare you well for a career in financial services.