A Broad Term View of Finance
Finance is an umbrella term for things regarding the study, development, and management of financial resources and investments. It is the method by which monetary systems are designed to ensure their long-term viability and provide individuals and groups with the means to meet their goals and objectives. The word comes from the Latin words: finance, aus, “systems,” and potestas. It is considered the study of how money is made, where it goes to, how it is spent, how it is distributed, etc. It includes all the decisions an organization makes with regard to money.
The scope of finance is wide and it includes different types of instruments used to create wealth. It can be seen in the field of investing, where a company decides to invest its retained earnings to acquire new investments or to create new assets. It can also be seen in the financing of various projects such as the construction of bridges, buildings, hospitals, etc. In essence, it encompasses the complete range of human activities that take place through the use of capital.
The discipline of modern financial economics is broad and deep, covering nearly all of the human thought in existence. Some areas of modern financial economics have become famous, such as supply and demand analysis, investment theory, the theory of property and in creating the modern financial services market. The study of behavioral finance has also had great influence on the understanding of today’s financial markets. Behavioral finance basically deals with determining the reasons people make financial decisions. It is an essential branch of study and research and even the definition of behavior is constantly being updated and altered.
Public finance is another branch that encompasses many of the same issues that apply to personal and corporate finance. Public finance is essentially the attempt to assess the full costs of doing what we do as a society. A broad view of public finance includes things like paying for health care, ensuring that our environment is healthy, etc. In addition, it measures the performance of banks and other financial institutions as a whole, as well as the performance of individual citizens and households.
Other areas of modern financial management concern itself with the behavior of corporations and the role they play in the larger economic framework. Corporations can be seen as voting when they should have otherwise and businesses can be viewed as investors that need to understand when and how they can invest to improve their balance sheet. These are just two examples of how the decisions made by businesses can have a direct impact on society at large. As such, understanding corporate financial management is essential to making sound corporate decisions.
While there is no doubt that all of these topics are important, they still fall under the larger umbrella of modern finance. All of these topics are important to the overall well being of the United States economy and they can be directly or indirectly tied to each other. For example, changes in financing, interest rates and the general state of the banking industry can have a wide range of indirect effects on all aspects of the economy. This is why it is important for people to have a broad term view of finance as it pertains to the larger picture of the economical landscape.
