- What is finance?
- Characteristics of finance
- Types of finance
- Importance of finance
- Difference between finance and economics
We explain what finance is, its branches of study, types and characteristics. Also, differences between finance and economics.
Finance studies and improves the money management of companies or individuals.
What is finance?
Finance is an area of the economy and the management of companies that are dedicated to the study of obtaining capital resources (that is, the financing) and transactions involving your investment and his saving, considering the risk and the uncertainty that this implies. These types of resources (money and other forms of assets) are therefore known as financial resources.
Financial studies are interested in the administration of the money. That is, due to the type of decisions that the different economic agents (the Condition, the Business or individuals) can take to better manage their resources, betting on their multiplication and on the fulfillment of their objectives corresponding.
The world of banking, debt, business investment and the stock market are part of the interests of finance.
The formal study of finance is divided into two main branches, according to their particular focus:
- Corporate finance. They assume the perspective of who requires funds or assets to make an investment, that is, who needs to generate resources.
- The valuation of assets. On the contrary, it assumes the perspective of someone who has capital to invest, and wishes to do so in the most profitable way possible.
These branches, in turn, are divided into a diverse set of application areas of financial knowledge.
Characteristics of finance
Broadly speaking, finances are characterized by the following:
- They deal with the management of money and capital goods: banking and savings, investments (bonds, Actions, etc.), loans, etc.
- As an area of knowledge, finance is located between economics, administration and accounting.
- They handle key concepts such as risk, benefit, interest rate, investment costs, etc., which serve to describe the functioning of the world of money.
- They allow the improvement of money management for both public and private entities, both individuals or families, as with large corporations.
- They are supported by the knowledge of other auxiliary disciplines, such as economics, accounting, statistics and math.
Types of finance
Finance can be classified into two large branches: public finance and private finance, each of which in turn has an important set of sub-branches or specialties.
- Private finance. They are those that 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:
- Personal finances Those that have to do with individual money management: income, fixed expenses, decision making on how to spend the money and on what, etc.
- Family finances. Understood as the sum of the finances of individuals who share a home, and who jointly face the expenses that this implies, and they make joint plans for the future.
- Corporate finance. That they have to do with the management of the assets of the companies or organizations private companies, that is, their financing decisions, their investment methods and their managerial decisions.
- Public finances. They are those that involve the State or the public companies that the State manages, and therefore are managed in different terms from the private ones. They cover the following areas:
- Fiscal policy. That is, the way in which a State collects and administers the taxes it obtains from its citizens.
- Public spending. What has to do with the way in which the State invests the money it manages and how much money it injects back into the society in the form of jobs, shopping, etc.
- Public debt. In the event that a State cannot cover its expenses, and goes into debt with private sectors to keep the State apparatus running.
- Budget public. That it has to do with the projections of future expenses that a State makes, taking into account its financial moment.
Importance of finance
Given the fundamental principle of every economy, which is that the resources available in the world are finite, while the needs that we must cover with them are infinite; Or, in other words: that money is not enough to do it or have it all at once, the importance of a field of study such as finance is obvious.
Finance allows individuals and organizations to play the game of capitalism in the best possible way, to obtain the necessary resources at the right time, and to be able to keep the economic machinery running.
Waste, bad investment, administrative clutter, and poor decisions can lead a productive and useful initiative to its ruin. For this reason, resource management is something that no one today can afford to ignore.
Difference between finance and economics
Simply put, finance is a branch or sector of the vast world of economics. Therefore, both disciplines interrelate and affect each other.
However, economics has a much broader focus: it studies the ways in which human needs can be satisfied through the production methods available to them. Finances, seen as such, focus only on money, and especially on money. industry and the business world.