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What is Finance?

Finance is a broad term that describes activities involving banking, leverage or credit, credit, capital markets, money, and investments.

Basically, finance represents the process of managing money and obtaining the required funds. Finance also includes the observation, creation, and study of the money, banking, credit, investments, assets, and liabilities that make up the financial system.

Many basic concepts in finance stem from microeconomic and macroeconomic theories. One of the most fundamental theories is the time value of money, which essentially states that a dollar today is worth more than a dollar in the future.

Key takeaways
Finance includes the creation and oversight of banking, leverage or credit, credit, capital markets, money, investments, and financial systems.
Basic financial concepts are based on microeconomic and macroeconomic principles.
The finance sector includes three main subcategories: personal finance, corporate finance, and public (government) finance.
Financial services are the processes by which consumers and businesses obtain financial goods. The financial services sector is the primary driver of a country’s economy.

types of finance
Because individuals, businesses, and government entities all need money to operate, the finance sector includes three main subcategories: personal finance, corporate finance, and public (government) finance.

personal finance
Financial planning involves analyzing the current financial position of individuals in order to formulate strategies for future needs within financial constraints. Personal finance is specific to an individual’s situation and activity. Therefore, financial strategies largely depend on the individual’s earnings, living requirements, goals, and desires.

For example, individuals must save for retirement, which requires saving or investing enough money during their working life to fund their long-term plans. This type of financial management decision comes under personal finance.

Personal finance includes the purchase of financial products such as credit cards, insurance, mortgages, and various types of investments. Banking is also considered a component of personal finance as individuals use checking and savings accounts as well as online or mobile payment services such as PayPal and Venmo.

corporate finance
Corporate finance refers to the financial activities related to running a corporation, usually with a division or department established to oversee those financial activities.

An example of corporate finance: A large company may have to decide whether to raise additional funds through a bond issue or stock offering. Investment banks can advise the firm on such considerations and help market the securities.

public finance
Public finance includes taxing, spending, budgeting, and debt issuance policies that affect how the government pays for the services it provides to the public.

The federal government helps prevent market failure by overseeing the allocation of resources, the distribution of income, and economic stability. Regular funding is mostly secured through taxation. Borrowing from banks, insurance companies and other countries also helps finance government spending.

Apart from managing money in day-to-day operations, a government body also has social and financial responsibilities. A government is expected to ensure adequate social programs for its taxpayer citizens and maintain a stable economy so that people can save and their money is safe.

financial Services
Financial services are the processes by which consumers and businesses obtain financial goods. A direct example is the financial service offered by a payment system provider when it accepts and transfers money between payers and recipients. This includes accounts settled through cheques, credit and debit cards, and electronic fund transfers.

Financial services are not the same as financial goods. Financial goods are products such as mortgages, stocks, bonds, and insurance policies; Financial services are functions—for example, a financial advisor provides investment advice and management for a client.

The financial services sector is one of the most important sectors of the economy. It drives the economy of a country, providing free flow of capital and liquidity in the market. It is made up of various financial firms including banks, investment houses, finance companies, insurance companies, lenders, accounting services, and real estate brokers.

When the economy of the region and the country strengthens, consumer confidence and purchasing power increase. When the financial services sector fails, it can drag the economy down and cause a recession.

What are financial activities?
Financial activities are initiatives and transactions that businesses, governments, and individuals undertake to advance their economic goals. They are activities that involve the inflow or outflow of money. Examples include buying and selling products or assets, issuing stock, initiating loans, and maintaining accounts.

When a company sells shares and makes debt repayment, both of these are financial activities. Similarly, individuals and governments are involved in financial activities, such as taking loans and taxing, that advance specific monetary objectives.

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