Finance is a broad term encompassing various matters concerning the study, production, and allocation of funds. The discipline has developed over the years into an advanced area of financial science concerned with the use of financial resources to meet the goals of society. The word “finance” is derived from the French words fol plus meaning “wealth, fortune, and income”, and fus plus “a loan”. In English the discipline has been refined to include many other financial terms, including: capital budgeting, saving, investment, income, lending, and estate planning. In addition, there are different ways of looking at the discipline which can be referred to as: micro-financial markets, macro-financial markets, finance and economics, market phenomena, economic development, and political economy.
One branch of modern finance that has come into popular usage is financial mathematics. Financial mathematics deals with the problem of designing financial instruments to take advantage of price changes. This branch of finance is best illustrated by the example of refinancing an existing financial instrument such as a mortgage to meet a new need. The objective of financial mathematics is to maximize the efficiency with which financial instruments are used to meet the objectives of the investor. This is achieved by the use of mathematical techniques such as Monte Carlo simulation and theory of financial risk.
Another branch of modern finance is the field of portfolio management. Portfolio management deals with the coordination and allocation of financial assets and liabilities between economic units in order to meet the objectives of the firm. An important feature of portfolio management is the use of time value as a measurement of financial risk. Time value is defined as the amount of time it would take for an investor to make a good investment and its worth is believed to increase with time. Thus, the value of a bond, stock, or currency should be in a positive rate over time as long as the bonds, stocks, or currencies belong to a well diversified portfolio.
One important aspect of the study of modern financial economics is the theory of optimal control. Maximization of efficiency and control are considered to be the two main characteristics of an efficient financial system. The main article discusses the concepts of optimum control in detail starting from the theoretical foundation to the present day. The present day financial economics considers as a main concept the concept of time value. The main article starts by discussing the theory of time value in relation to finance.
Debt and finance are closely related. The concept of debt is basically the demand side of finance. It refers to the payment of loans or mortgages with a specified date at a specified rate of interest. The repayment term of the loan may range from several years to decades. In contrast, finance on the other hand refers to the investment side. It is the supply side that refers to the ownership of financial assets such as property and financial securities.
There are many aspects of modern financial management. These include financial planning and capital budgeting. Finance is directly related to the structure of capital, the rate of return, asset value and liabilities. The process of finance involves the assessment of financial potentiality, the need for finance and the means to fund it, valuation of financial instruments, management of financial resources and tax treatment. We can further break down these concepts into various categories like banking, lending, savings, investment, corporate tax and portfolio management.
