An Overview of Modern Financial Theory


An Overview of Modern Financial Theory

Finance is a broader term for things regarding the study, creation, distribution, and management of financial resources. The study of finance has become more important over time because of the development and globalization of global markets. Finance helps in realizing plans and objectives through the efficient use of financial resources. The objective of the study of finance is to ensure the utilization of financial resources for the benefit of the individual and society. Finance is concerned with the measurement, evaluation, prevention, and control of financial risks.

The discipline of finance is made up of various sections including applied research, investment, economics, public policy, risk, portfolio management, banking, and other aspects of the modern financial reporting systems. Applied research encompasses all the systematic approaches made use of in the quantitative analysis of monetary instruments as well as in the behavioral approach. Economics makes use of the concepts of supply and demand, income and other aspects of activity directed toward the production. Public policy and risk are also covered under the area of modern financial engineering.

Behavioral finance includes the study of behavior related to investments, savings, and spending. Behavioral economists are concerned with the individual’s decisions, both long-term and short-term, about saving, spending, and lending. The purpose of this branch of modern financial analysis is to discover the economic signals that indicate potential dangers or opportunities in the savings and lending activities of individuals and institutions. It also looks into the decision making processes used by financial institutions in making loans and purchases.

The field of banking comprises the broad categories of commercial banking, investment banking, credit banking, invoice financing, deposit banking, mortgage banking, cash management, and non-banking services. Commercial banking refers to the banking activities undertaken for the purpose of receiving and granting loans and providing credit cards. Investment banking refers to the activities of managing the investment portfolios of banks. Credit banking is the wholesale financial market dealing chiefly in the deals between banks and other credit holders and borrowers. Depletion banking is the direct trading of monetary funds, not requiring the intervention of banks.

Public finance relates to the management of the financial system, particularly governmental finance. Public finance includes governmental programs such as grants, loans, social security, welfare, and worker compensation. Finance researchers study and attempt to determine the scope and costs of various forms of public programs.

Savings accounts (or savings loans as they are more commonly known) are popular and widely used financial tools. They provide a predictable source of income and help to stabilize an economy. The functions performed by savings accounts include accumulation, maintenance, and disbursement of funds. Other important forms of modern finance include commodity markets, mutual funds, the interbank market, and international trade.