Finance is the science of the management of financial markets, financial institutions and how they function within the economic system. It’s concerned with the production and management of investments and money. Investors and savers both have money accessible that can make dividends or interest payments when put to good use. Money can be created and saved, loans can be taken out or money transferred from one account to another. All of these activities are considered part of the process of financing.
There are many ways in which the funds of individuals and groups are made available to them through the process of financing. One of the most common and effective ways by which funds are obtained is through borrowing funds from banks, lending funds to companies or investing in securities. All of these processes require some type of collateral as a guarantee of repayment of the borrowed funds. If repayment is not guaranteed, there will be less funds available to those requiring it. This can lead to less overall funds available for investment decisions, less capital available for raising funds and less assurance of return on investment for lenders or borrowers.
The science of finance is often studied in schools and colleges as part of the general curriculum. In recent years, however, with more sectors of the economy relying on finance as a key source of funds, finance has become an important subject for students to study, with many choosing a career in banking after graduating from secondary school or completing a degree. Finance is a discipline that is characterized by a wide range of statistical tools and models to track and analyze financial markets. The study of finance is also intimately associated with other areas of economics such as business cycles, inflation, unemployment and balance sheets.
The field of finance is very diverse and there is an endless array of opportunities in which individuals can choose to invest their finance knowledge. The most popular form of investment for the finance professional is often to use their mathematics skills and mathematical skills to calculate potential capital investment opportunities. A key part of this investment strategy is risk management, as the successful investor must assess the likely returns on their investments as well as identify any possible risks that could affect investment funds. Financial management is also applied to the commercial and investment banks that lend funds. As well as providing finance professionals with a solid understanding of when, where and how to invest, the banks themselves are responsible for managing and monitoring the funds invested by their customers.
Finance is the most important consideration for businesses in all industries but especially in the finance industry as finance decisions directly impact how much money the company can earn and spend. An effective finance department should have sound risk management procedures in place to minimise exposure to any adverse economic conditions. A strong sense of risk management also encourages responsible investing by bank employees into the best areas and using the capital funds with great care. Finance graduates should develop the interpersonal and analytical skills required to deal successfully with complex issues such as derivatives, hedging and currency exchange rates. They may find employment in banking, the central banks or in financial advisory firms.
The world of finance has many areas of specialization such as venture capital, commercial real estate, alternative energy, hedge funds and insurance. As well as investing in the financial systems, finance also encompasses the accounting principles that are used to track and report the funds invested in business ventures and individual portfolios. Finance graduates may also find employment as bankers or financial advisors, as well as consultants in various sectors such as technology, pharmaceuticals, telecommunications and the leisure sector. A strong understanding of international finance and the international markets is a prerequisite for those wishing to progress into the upper echelons of finance.
