Definition of Finance

The word finance was originally a French word. In the 18th century, it was adapted by English speaking communities to mean the management of money. Today, finance is not merely a word but it has emerged into an academic discipline of greater significance and now it is an organized branch of Economics.

Finance includes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments. Finance aims to price assets based on their risk level and their expected rate of return.

Finance can be broken into three different sub-categories:

  • Public finance includes finance related to states and national entities and related public entities (e.g. school districts) or agencies. It involves Identification of required expenditure of a public sector entity, Source(s) of that entity’s revenue and budgeting process
  • Personal finance includes paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement
  • Corporate finance deals with the sources of funding and the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources.

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