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What is Finance – Definition,  Characteristics, Types, and More

What is Finance – Definition,  Characteristics, Types, and More


Finance is a field of economics and business administration that is dedicates to the study of obtaining capital resources (that is, financing) and transactions that involve investments and savings, given the risk and uncertainty involved. Therefore, these types of resources (money and other forms of assets) are called financial resources.

Financial studies deal with money management. That is, by the type of decisions that different economic agents (State, companies or individuals) can take to manage their resources better, betting on their multiplication and achieving their corresponding objectives.

The world of banking, debt, business investment and the stock market are among the interests of finance.

The formal study of finance is distributes into two main branches, according to their particular orientation: Business financing. It takes the perspective of who needs funds or assets to invest and who needs to generate resources.

Asset valuation. Instead, take the perspective of someone who has capital to invest and wants to do so in the most profitable way possible. These branches, in turn, are divided into a diverse set of application areas of financial knowledge. It can help you: Company Resources.

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Characteristics of Finance

In general, finance is characterized by the following elements:

They manage money and capital assets: banking and savings, investments (bonds, stocks, etc.), loans, etc.

As a field of knowledge, finance is located between economics, administration, and accounting.

They address key concepts such as risk, profit, interest rate, investment costs, etc. They are used to describe how the world of money works.

Although, They make it possible to improve money management for both public and private entities, whether individual or family and large companies.

They are based on other ancillary disciplines, such as economics, accounting, statistics, and mathematics.

Types of Finance

Finance can be classified into two broad branches: public finance and private finance, each of which in turn has a significant set of sub-branches or specialties.

Private Financing

They are those who seek the optimization of resource management in the case of private or individual entities: SMEs, large companies, families or individuals. They cover the following areas:

Personal Finance

Those that relate to personal money management: income, fixed expenses, decision-making on how to spend the money and on what, etc.

Family Finances

Understood as the amount of the finances of the people who share a home and face the associated expenses and make standard plans for the future.

Business Financing

Be it the asset management of private companies or organizations, their financing decisions, investment methods, and management decisions.

Public Finances

Therefore, they involve the State or public companies managed by the State and organize other than private ones. They cover the following areas:

Fiscal Policy

The way a state collects and manages the taxes it obtains from its citizens.

Public Expenditure

It is about how the State invests the money it manages and the money it returns to society in jobs, purchases, etc.

Public Debt

A State cannot cover its expenditures and goes into debt with the private sector to operate the State apparatus.

Public Budget

If it is about projections of future expenses that a State makes, given its economic moment.

The Importance of Finance

Given the fundamental principle of any economy, the resources available in the world are finite. At the same time, the needs that we have to satisfy them are infinite. Or, in other words: that money is not enough to do it or have it all at once.

Finance enables individuals and organizations to play the game of capitalism to the best of their ability, obtain the necessary resources at the right time, and operate the economic machine.

Waste, bad investments, administrative clutter, and poor decisions can ruin a productive and valuable initiative. For this reason, resource management is something.

Also Read: What is the Credibility of a Business? – Definition, and More 

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