
Introduction
Finance is a more general term that refers to the processing of money matters,valuation of assets and other financial resources.It is used in the economic,business and personal life and this paper will provide an overview of what finance is,the different branches of finance,the basic concepts in finance and how it is applied in different fields.
Definition and Scope
In its simplest form,finance is the science of money,valuation and investment and other financial assets.It is the process of making choices about the use of resources and the balancing of resources over a period of time in a risk-filled environment.Finance is relevant in:
• Personal finance
• Corporate finance
• Public finance
• Investment management
• Risk management
This paper first defines the branches of finance as personal finance,corporate finance and public finance:
1.Personal Finance
Personal finance has to do with the personal and household level financial decisions.It includes:
• Budgeting and saving
• Investment for personal objectives such as retirement,education.
• Managing debt (mortgages,credit cards)
• Insurance and risk management
• Preparation of tax return.
2.Corporate Finance
Corporate finance is the branch of finance that deals with the funding of operations and management of corporations with a view to enhancing shareholder value.Some of the key areas include:
• Capital structure decisions
• Capital budgeting which is the process of evaluating investment opportunities
• Management of working capital
• Financial planning and analysis
• Acquisition and merger activities
3.Public Finance
Public finance is the study of government institutions and their impact on the economy.It includes:
• Government spending and revenue
• Taxation
• Expenditure
• Fiscal policy as a branch of macroeconomics
• Management of public debt
4.Investment Management
Investment management is the professional management of various securities and other assets.It includes:
• Portfolio management
• Asset allocation
• Security analysis and selection
• Risk assessment and management
• Performance measurement
5. Risk Management
Risk management in finance is the process of identifying,measuring and controlling financial risks.This includes:
• Market risk
• Credit risk
• Operational risk
• Liquidity risk
• Regulatory risk
Fundamental Concepts in Finance
1.Time Value of Money
The time value of money is a central notion in finance,which says that money at present is more valuable than the same amount of money at a different time in the future because it can earn interest.
2.Risk and Return
This concept highlights the trade off between risk and return on an investment or portfolio.It is widely known that higher risks are rewarded with higher returns.
3.Diversification
Diversification is a risk management strategy that involves the incorporation of different types of investments within a single portfolio with the aim of reducing overall risk.
4.Financial Markets
Financial markets are markets for the purchase and sale of financial assets.These include the stock market,the bond market,the foreign exchange market and the derivatives market.
5.Financial Statements
Financial statements are the formal records of the financial activities of a business.The main statements are:
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Statement of Changes in Equity.
0 Comments
i hope this post is usefull to you.Thank you.If you have any doubt than you can contact us.