Finance is a relatively broad term covering many things about the science, development, and management of financial resources and assets. This includes such areas as budgeting, saving, investing, lending, and the exchange process. The word “financial” is often used to describe human activities related to money, such as saving for emergencies, paying loans, purchasing homes and cars, paying off credit cards, and saving for retirement.
Although there are many different components of finance, most modern efforts at building financial systems are usually concentrated on two specific areas: banking and capital markets. Banking refers to the activities related to the borrowing, holding, managing, and disposing of financial instruments, such as bank deposits, savings accounts, commercial real estate loans, and other forms of credit. Bank instruments include such financial instruments as bank loans, credit cards, personal loans, merchant cash advances, checks, and bills. The more common types of banking include savings and credit banks, commercial banks, trust companies, money lenders, and other financial institutions.
Capital Markets refers to those aspects of the market system that deal with the creation, disposition, allocation, risk, value, and return of funds. All aspects of capital markets – financial markets, financial exchange markets, money markets, and other markets – are part of Finance. Finance must address the activities that are needed to make money management decisions and the process of creating them. All aspects of Finance are involved in the process of creating, organizing, and delivering credit, although the process of creating credit involves only physical processes.
There are several areas of overlap among the various functions of Finance. The three broad areas of Finance are budgeting, saving and investment, money management, and the exchange process. All of these are necessary for a healthy economy and all of them interact to influence the operation of businesses and the level of living. In addition, there are many roles for which professional experience is required.
As previously mentioned, Finance is part of the broader field of economics. The broad field of economics includes the study of the interactions of economic agents, institutions, and technology with one another and with the rest of the economy. Professional economists generally focus on the macro economic processes that take place over the long term; they analyze how different economic policies affect the various individuals and firms that make up the economy. Some examples include studying the interactions of financial institutions, central banks, governments, and households.
A few sectors of the financial services sector are more likely to require professional accounting and financial reporting expertise than others. One of these sectors is the investment banking sector. In addition, the investment banking industry also includes bond and certificate of deposit products. Finally, professional experience is also needed by traders in the foreign exchange market, including futures and options brokers. There are also a number of other roles for which professionals with accounting backgrounds are needed.