Finance is a broad term referring to things about the science, development, and management of investments and money. Finance is used in all fields of life including business, economics, investment banking, insurance, public health, and even the arts. While there are many different aspects of Finance that make up the subject, it basically deals with the process of getting money to do what it was meant to do. The word “finance” actually comes from the Latin word which meant money.
As mentioned previously Finance deals with the use of money in all of these different areas. Banks create loans by making investments in goods and services they believe the consumer will purchase. When the bank believes the investment will be fruitful they create capital and use it to make loans. When the loan has been paid off, the bank then makes another loan to pay off the original creditors.
All of these financial activities occur within a complex network of institutions and people who manage the funds. The five main components of the financial system are banking, capital markets, investing, trade, and globalization. Banking refers to the process of creating, granting, managing, and providing loans. Capital markets refer to the purchasing and selling of securities based on the capital value of the investments being made.
Investing refers to the buying and selling of securities within a defined financial system. It can also include borrowing and lending. Trade deals with other countries, their products, and currencies. Globalization is the broadening of the global economy, which includes the movement of markets, technology, and information. All of these aspects have an effect on the financial system and how it works.
Accounting is an essential part of the financial process. Accounting provides data that allows managers to make decisions. Accountants create reports at regular intervals called accounting records. There are two main types of accounting: public and private.
Public accounting focuses on the day-to-day financial activities of businesses and other organizations. This includes the financial statements, the income statement, and the balance sheet. It also includes reconciliation techniques to make sure that there are no errors in the financial statements. Public accounting focuses on the accuracy of financial statements and data. Because it is not organized as much as other types of accounting, it has a higher risk of errors and omissions. Private accounting on the other hand, takes into account only the assets, liabilities, and net worth of a business or organization and does not include internal or external financing or trading.
While the accountant performs the basic tasks of creating financial statements and reports, the financial reporting specialist tracks the activity through the accounting process. Financial reporting prepares and gives the shareholder (or owners) of a company, the company’s senior management, investors (ownership groups), and other individuals the ability to understand and interpret the financial statements that accompany the financial statements. It includes preparing and interpreting the financial statements, arranging them in a report that makes sense and is easy to read for decision making, analyzing the information contained within the financial statements, communicating it to decision makers, and presenting it to the shareholders, among others. This process allows people to make informed decisions about the company and the industry in which the company operates.
Finance affects everything in our lives. It impacts the stock market, the money market, the real estate market, interest rates, consumer demand and supply, inflation, financing, fiscal policy, and even the global economy. The field of finance is a very broad area that involves many different sectors and industries such as banking, insurance, investment, corporations, lending, and financial markets. Finance curriculum emphasizes learning about all of these areas and the interactions that occur between them.