A Closer Look at Finance
Finance is a broad term encompassing things about the science, development, and management of financial assets and liabilities. The field of finance is vast and often complicated. Some areas of finance are concerned with taxes, lending, banking, insurance, economies of scale, and the political economy. All these factors influence how people live their lives.
The discipline of finance is closely related to management. Finance affects management in a way that managers become more aware of how their activities affect the firm as a whole. As a result, managers become more conscious of using budgets wisely, maintaining funds, and controlling costs. Financial reporting is necessary for decision-making in finance.
A manager’s role in the organization determines the area of financial management. Managers at all levels can be involved in the study or management of funds, but they generally perform different roles. For example, in large corporations finance is often exercised by CFOs, who manage the company’s annual budget. CFOs prepare and report financial statements; assess investment projects; and make other strategic decisions. Small business owners, on the other hand, handle day-to-day operations and have less direct contact with funds. Many small business owners hire accountants or finance officers to perform these functions.
Finance affects the larger economic system. The funds generated by the finance sector to determine the level of national output. The size of the national economy also determines the tax rates and the level of government spending. Without good finance, the national economy would not be able to sustain large-scale investment projects, such as the construction of roads, bridges, and parks.
Finance helps to protect the value of the money supply, which is determined by the ability of banks to lend. One aspect of finance is that it tends to expand the existing forms of banking. Banking uses financial systems and instruments to create and deliver loans. For example, it makes loans available through banks that do not physically interact with clients. There are some banks that do not participate in lending, such as the Bank of England, the Royal Bank of Scotland, and the City Bank.
Finance provides information about how different financial instruments are valued. This process is known as valuation. Some forms of financial systems are in equilibrium, interest, risk, price, portfolio, securities, international finance, insurance, and commodity markets. Finance provides information about the relationships among financial instruments, such as liabilities and assets. It also describes the risks and rewards associated with making certain types of investments, such as stock investments, bonds, securities, and derivatives.