Introduction to Finance
Finance is a broad term encompassing things regarding the science, development, and management of funds and investments. It also involves the discipline of assessing risks and making decisions concerning the allocation of resources in order to maximize return. Financial markets refer to the instruments used to facilitate financial transactions in financial markets such as the stock exchange, foreign exchange market, futures market, bond market, money market, interest rate market, etc. It is also associated with accounting, economics, and other aspects of banking. Financial markets are basically of three types Forex market, bond market, and money market.
Finance is also used in the assessment of risk and value of financial instruments of value. Financial theory deals with accounting methods and concepts, management of financial resources, risk, and valuation of financial instruments. Financial analysis is the process of predicting the supply and demand of money, analyzing business cycles, looking for signs of financial problems in the economy, and dealing with them in order to minimize the effects on the economy and make financial problems acceptable solutions. It is also used in making economic policies like regulation of banking, central management of industrial and commercial banks, central management of large banks, and regulation of mortgage finance, debt financing, and insurance enterprises.
The main functions of financial services in the economy are to provide financial solutions and help the economy to recover from the economic downturn. With the aid of financial services, banks and other credit institutions to provide loans to businesses and individuals for starting a new business, for purchasing vehicles, for opening new branches and outlets, for consolidating debts, for refinancing, and for other purposes. Financial planners give advice concerning the allocation of assets and liabilities, as well as suggestions for future savings and investment plans. They also play an important role in budgeting and financial planning.
The modern financial services sector offers many other services, including commercial loans and leasing, estate planning and real estate investment, insurance, securities and commodity trading, banking, corporate finance, and commodity markets. A wide range of financial products are traded in the market, including financial derivatives, bonds, equity markets, and foreign exchange (Forex). In addition, there are various financial instruments such as financial derivatives that are traded publicly and privately. Examples of derivatives are interest-rate swaps, forward contracts, and swap agreements. The basic function of accounting is to record the values of assets, liabilities, and assets’ performance, and its classification as either income or loss, capital gain or loss, or net worth.
While economics is the science of understanding how people and institutions interact, financial services is the art of providing those interactions. In simple terms, finance is the method of earning money by the use of financial instruments such as currency, banking, and investing. The scope of this field is quite broad. There are many factors that affect the rate of interest, such as inflation, economic policies of countries, changes in the tax system, economic conditions of companies, etc.
In order to understand what role the finance professionals play in the economy, it is important to know what financial products are available in the market. For instance, financial products like equities (shareholdings in stock markets), derivatives, foreign exchange, bond, mortgage, corporate bonds, mutual funds, property, bank deposits, and so on. As far as investments in finance is concerned, the different categories include portfolio investment, bond fund investment, individual investment, bonds, money market, bank deposit, bank lending, and so on.