Finance is often a vague term for things regarding the creation, study and distribution of funds and assets. It is used in a much wider sense than simply as money. It also encompasses investment strategies, market movements and financial markets. Many investors and savers have additional money available that can make dividends or interest payments if placed to good use.
One area that is extremely well studied and researched by economists and finance gurus is how individual investors make their own decisions. Finance has a great number of methods and strategies for determining which investments are the best. Some of these techniques are known as high risk/high reward, risk-to-reward or simply risk. There is also something known as the Wealth of Nations that identifies the methods and types of investments that the world’s great minds have made throughout the ages that have consistently provided investors with profits and successes.
In modern times, the concepts of Finance and Banking spread globally through the developing world, with many countries following the example of the West when it came to laying the foundation of modern economic and banking systems. Developed nations typically followed the British system of direct deposit banking, while developing nations used the emerging Debit System as a method of keeping their national currencies from becoming too weak. Today, virtually every developed country uses some form of Banking and Finance.
Developed countries tend to follow the practices of direct deposit banking. They usually have one or more central banks that operate in the money supply and banking system for the country. The central bank creates a series of interest rates for loans from private sources, using the funds as an international reserve currency. Interest is collected by the central bank from lending institutions on behalf of the banking system and given directly to depositors, who then pay interest to the central bank themselves. The major banks are always expected to pay interest to depositors as a percent of the total face value of the loan, with the Federal Reserve Bank acting as the financial intermediary between the public and private creditors.
Developed economies typically have developed a fairly solid understanding of Finance and Banking. Typically, this knowledge has come about through decades of liberalization of the economy, ranging from deregulated, free-trade practices to outright free trade. It was also developed during the New Deal era, when large scale reforms were introduced in order to create a more level playing field in global trading. Much of the basic knowledge of Finance and Banking comes from having been schooled in the traditional home economics curriculum, including such concepts as savings, investment, lending, and balance of trade. Many of today’s economic textbooks begin with an introduction to the topic, often quoting famous economists like John Maynard Keynes, Henry Ford, and Chicago Booth as well as more contemporary minds like Nobel Prize winner Paul Krugman and Chicago businessman Peter Drucker.
Modern financial theories have developed and changed significantly since the mid-nineteenth century. Much of this change can be attributed to developments in the world’s economies, specifically the emergence of industrialization. With the dawn of industrialization, capital becomes increasingly available to both small and large holders of finance, with an emphasis on infrastructure and product development rather than individual wealth accumulation. Furthermore, with advances in communication technology, the scope of Finance and Banking becomes widespread throughout society. Today, many modern economic textbooks actually incorporate elements of Finance and Banking into their explanations, therefore making modern financial theories one of the most influential influences on economics and finance throughout the modern age.