An Introduction To Finance
Finance is a broad term encompassing various fields of activity that deal with the science, development, management, and measurement of financial resources. The discipline also covers aspects such as budgeting, economic forecasting, hazard and investment risk, business banking, investing, and financial risk management. The discipline also encompasses principles, rules, and strategies that help people manage their finance.
A number of concepts are involved in the study of finance and financing, including asset and liability analysis, financial market structure, bank lending, money markets and government finance, insurance, industrial activity, entrepreneurship, and personal and business finance. All these various fields of finance are intrinsically linked with each other and require specialized knowledge, skills, and experiences. In addition, some theoretical aspects are also required to understand how they interrelate, and the concepts may be studied using such disciplines as accounting, economics, accounting theory, economics of finance, financial reporting, risk management, and financial planning. In business, finance helps determine which projects are feasible and which can be abandoned, decides which employees should be hired, and decides which products should be sold.
Finance is basically the art of making better decisions for a company or institution. It involves the use of funds to make decisions regarding investment, growth, management of resources, purchasing power, and projects. A manager may receive advice from other managers on which actions may be beneficial for the company; he may receive periodic reports from the board of directors about its activities; and he may receive periodic reports from shareholders on what they want the company to do. Finance therefore involves the application of mathematical and statistical techniques to evaluate the results obtained from all the information that it has available.
One of the most important aspects of corporate finance is risk management. A manager who is responsible for managing the financial activities of a company must be familiar with all its potential risks, and must therefore prepare plans for preventing, reducing, or stopping any unexpected incidence. Some of the areas of finance that involve risk are: speculative investments, short sales and purchase of investment securities, derivatives, foreign exchange, insurance, investments in fixed wealth assets, investments in non-financial enterprises, risk capital, public sector finance, venture capitalists, and ownership and investment activities. Professional financial planners may also be involved in managing some of these areas of finance.
Another aspect of finance is credit-based risk. Credit-based risk is based on the capacity of a borrower to pay the loan back. Finance majors who specialize in credit management are required to formulate strategies for minimizing credit risk by restricting credit purchases and ensuring timely repayment of loans. The major areas of credit-related risk in the United States are mortgage credit risk, non-mortgage credit-risk, hybrid credit-risk, retail credit-risk, and corporate credit-risk. Finance graduates who choose to major in finance should have strong mathematical and logical skills and be familiar with analyzing and evaluating financial documents.
Finance graduates who decide to work in finance may be employed in banks, law firms, financial consulting firms, private financial institutions, media firms, or in the corporate sector providing investment advice and financial analyses to businesses. They may serve as accountants, consultants, managers, or stock analysts. Some enterprising individuals have taken on a number of finance jobs to build their own firm, either as a full-time employee or part-time consultant.