|
Finance studies and addresses the ways in which individuals,
businesses and organizations raise, allocate and use monetary
resources over time, taking into account the risks entailed
in their projects. The term finance may thus incorporate any
of the following:
• The study of money and other assets
• The management of those assets
• Profiling and managing project risks
• As a verb, "to finance" is to provide funds
for business.
Some basic financial concepts
The activity of finance is the application of a set of techniques
that individuals and organizations (entities) use to manage
their financial affairs, particularly the differences between
income and expenditure and the risks of their investments.
An entity whose income exceeds its expenditure can lend or
invest the excess income. On the other hand, an entity whose
income is less than its expenditure can raise capital by borrowing
or selling equity claims, decreasing its expenses, or increasing
its income. The lender can find a borrower, a financial intermediary,
such as a bank or buy notes or bonds in the bond market. The
lender receives interest, the borrower pays a higher interest
than the lender receives, and the financial intermediary pockets
the difference.
A bank aggregates the activities of many borrowers and lenders.
A bank accepts deposits from lenders, on which it pays interest.
The bank then lends these deposits to borrowers. Banks allow
borrowers and lenders of different sizes to coordinate their
activity. Banks are thus compensators of money flows in space
since they allow different lenders and borrows to meet, and
in time, since every borrower will eventually pay back.
A specific example of corporate finance is the sale of stock
by a company to institutional investors like investment banks,
who in turn generally sell it to the public. The stock gives
whoever owns it part ownership in that company. If you buy
one share of XYZ inc, and they have 100 shares available,
you are 1/100 owner of that company. You own 1/100 of anything
on the asset side of the balance sheet. Of course, in return
for the stock, the company receives cash, which it uses to
expand its business in a process called "equity financing".
Equity financing mixed with the sale of bonds (or any other
debt financing) is called the company's capital structure.
Finance is used by individuals (personal finance), by governments
(public finance), by businesses ([[corporate finance])], etc.,
as well as by a wide variety of organizations including schools
and non-profit organizations. In general, the goals of each
of the above activities are achieved through the use of appropriate
financial instruments, with consideration to their institutional
setting.
• Personal
Finance
Questions in personal finance revolve around
• How much money will be needed by an individual (or
a family) at various points in the future?
• How does this money need to be funded? Personal financial
decisions involve paying for education, financing durable
goods s.a. real estate and cars, buying insurance, e.g. health
and property insurance, investing and saving for retirement.
• Dealing with debt
Financial Economics
Financial economics is the branch of economics studying the
interrelation of financial variables, s.a. prices, interest
rates and shares as opposed to those concerning the real economy.
It concentrates on influences of real economic variables on
financial ones, in contrast to pure finance.
It studies:
• Valuation - Determination of the fair value of an asset
• How risky is the asset? (identification of the asset
appropriate discount rate)
• What cash flows will it produce? (discounting of relevant
cash flows)
• How does the market price compare to similar assets?
(relative valuation)
• Are the cash flows dependent on some other asset or
event? (derivatives, contingent claim valuation)
•
Financial markets and instruments
• Commodities - topics
• Stocks - topics
• Bonds - topics
• Money market instruments- topics
• Derivatives - topics
•
Financial institutions and regulation
See:
• List
of Finance Topics
• Bankruptcy
• Adverse Credit History
• Credit Counseling
• Debt
Consolidation
• Foreclosure
• Student
Loan Consolidate
•
Experian
•
Creditor
• Credit Report
• Credit Score
•
Liens
• Annual percentage rate
• Interest rate
This
article is licensed under the GNU
Free Documentation License.
It uses material from the Wikipedia
article "Finance".
fiance,
financ, fnance, finnce, finace, finane, faince, finnace, finanec
|
