Finance is a general term for things about the science, development, and implementation of financial resources and securities. Financial instruments are those instruments of trade that facilitate communication of information concerning expected and actual payments or returns, including the prices and sales prices, as well as the balances. Financial markets, including financial markets such as futures and foreign exchange markets, are systems in which financial instruments are bought and sold to meet the demands of buyers and sellers for those financial instruments.
Finance is also the science that finds its expression in accounting. Accounting studies the method by which value is determined for the assets and liabilities of a business or organization. It records the process of earning a return on equity, interest, or principal and distributes the funds to various uses. Financial accounts give an account of the income and expenses of a firm and give the means by which the value of capital goods purchased can be measured. Accounting is a branch of information science that deals with the problem of producing a method of measurement by use of numbers that can be observed and tested in an economic environment.
Marketing finance defines the ability of firms to attract capital and uses it to expand the size and capability of existing businesses and to develop new ones. Marketing also encompasses distribution of capital between various projects, and between enterprises in different countries. In technical terms, marketing uses the financial instruments (such as credit, equity, trade receivables, inventory, and working capital) and strategies to promote the sale of goods and services to customers. Other kinds of financial management include international finance, the venture capital market, corporate finance, merchant finance, mortgage banking, government finance, and personal finance.
Economics is the study of how people, institutions, and groups choose to invest their money. The basic economic concept of economics is that money is the most effective medium of exchange when the market rate of interest is high and the demand for goods and services is low. Economic theory suggests that individuals, firms, and institutions invest their money in assets and bonds that have high potential return; the money is used to purchase raw materials, make investments, and employ workers. In turn, government agencies, banks, and corporations lend money to other individuals, firms, and institutions in the form of loans or advances.
Finance can be divided into two main branches: personal and commercial. Personal finance encompasses transactions for the care of personal properties and personal belongings. Commercial finance encompasses activities related to the operation of businesses, including purchasing of goods, production, selling, trading, investment, and consumption. All the three branches of finance interact with each other and influence each other to achieve the goals of the organization. Financial systems are a crucial part of society and its economy; therefore, proper management of finance is essential for the successful operation of the entire economy.
In order to understand the modern financial theories, it is useful to look into the history of economies and finance. For instance, in ancient times, small groups of people relied on money to meet their basic needs, such as food, shelter, clothing, fuel, etc., and made trade transactions in the open markets. With the arrival of cash, Western society became sophisticated and developed different systems of money management and accumulation. The development of private equity, commercial banking, mutual funds, and stock market resulted in the development of modern economics.