Finance is the study, development, and implementation of financial transactions and policies that will ultimately benefit a company or a country. The study and implementation of such policies and transactions are known as Finance. Financial markets include financial institutions (such as banks, credit unions, investment banks, and mortgage companies), government agencies, and even individuals. The purpose of all these individuals or organizations in finance is to make and manage their own finances by creating financial plans, buying securities, issuing shares, and engaging in various financial activities.
One of the most important sections of finance is money management or the management of funds. This includes the control of the supply, use, allocation, risks, and rewards of funds. It includes the provision of adequate resources for the accomplishment of goals and objectives, the preparation and establishment of long-term plans, the maintenance of records of funds, the maintenance of financial strength, and the adjustment of prices. Finance is a huge field involving a wide range of techniques and instruments. There are different ways in which funds can be managed. Some of these ways are mentioned below:
In economics, budgeting is the process of forecasting, planning, analyzing, and deciding on the allocation of funds. In other words, budgeting deals with the future consumption, saving, investment, distribution, availability, mobility, and allocation of resources. This process is carried out through the process of financial analysis. Budgeting in the broadest sense is nothing but the setting up of definite plans or targets as regards the supply of funds. For example, public budgeting involves the allocation of the budget in terms of assets and liabilities, consumption, income, and so on.
Finance deals with all those activities associated with managing the financial system of a nation. The three bodies that constitute the financial sector are: banks, brokers, and central banks. Banks are financial institutions that lend their currency to other banks, borrowers, and corporations. Brokers provide services for the purpose of facilitating interbank transactions and settlements. Central banks, on the other hand, are financial institutions that control the supply of money in the monetary system.
Finance deals with the management of monetary assets and liabilities. There are two types of monetary systems in the modern world: the secured and the unsecured form. In the secured form, money is created by governments and controlled through central banks. Unsecured form of funds is not backed by any asset and is generally created by private individuals. Finance thus deals with the processes of creating money and ensuring its repayment.
Finance has three important sectors: banking, capital markets, and public finance. Banking refers to the business activities of creating and managing money. Capital markets refer to the buying and selling of securities on the capital market. Public finance includes spending of capital generated by taxes. Finance plays an important role in determining the growth of the economy.