What is Finance | Definition | Overview?

Finance is generally the management of money and any activities that are associated with acquiring and spending of money. Investing, lending, saving, borrowing, budgeting, and forecasting are a few examples of financing activities.

Finance is a very broad term that involves all activities related to banking, money, investments, debt or leverage, credit, assets, etc. Finance also includes supervision, creation, and study of all mentioned-above financial activities.

Finance also encircles all activities related to the creation of money, studying financial systems .i,e., Banking, Investment, Financial Institutions, Borrowing, Lending, Savings, Assets, and Liabilities, etc. 

The term “finance” is versatile in nature. Its meaning evolves as per the activity. Some define finance as the money needed to support or start a business while there are others who define it as an activity of management of money.   

In other words, whatsoever is related to finance in terms of tangible as well as intangible, all lies within Finance Definition.

Finance as a whole Encompasses

Finance is defined as the management of money and also includes activities like saving, investing, lending, borrowing, budgeting, and forecasting.

3 main types of finance are:

1. Personal

2. Corporate

3. Public/Government

Some common examples of Finance activities:

  1. Investing personal money whether for self or for others in the form of stocks, bonds, securities, or guaranteed investment certificates (GICs), etc.
  2. Borrowing money from institutional investors by issuing bonds on behalf of a public company. Examples of institutional investors are Hedge Funds, Mutual Funds.
  3. Lending money to people by providing them a mortgage to buy a house.
  4. Using excel for building a budget and financial models for an organization or corporation.
  5. Saving personal money in a high-interest saving account.
  6. Forecasting government spending and collection of revenues and taxes.

As it would be clear by now – Finance involves everything from very simple tasks to complicated ones.

Outline of Finance

There is a wide range of topics covered by the Finance industry which professionals are concerned with. A Few examples out of them are Interest rates and spread, Financial Statements (Balance Sheet, Profit, and Loss statement Cash flow statement), Yield (Dividends, coupon), Cash flow (Liquidity and other types of cash flow), Profit (Net income), Rates of Return (IRR, ROI, ROA), Capital cost (WACC), Shareholders, Dividend and return of capital, Risk and return and many more…

The term “Finance” is very broad. Finance is a career field with many different specializations, working with many different responsibilities.

The most popular career opportunities in finance are:

1. Commercial banking
2. Personal or private banking
3. Investment banking
4. Wealth management
5. Corporate finance
6. Mortgage/Lending
7. Accounting
8. Financial Planning
9. Treasury
10. Equity research
11. Audit
12. Insurance

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