Finance is a broad term encompassing various concepts and issues regarding the study, development, management and allocation of funds. In particular, it covers the issues of how and for whom an individual, firm or government appropriates the funds required through different transactions, such as purchases, sales, repossession, lease, borrowings, lending, and outright investment. The term is also used to refer to the field of economic activities which finance represents, including but not limited to: the collection of payments from the payment of debts or other financial obligations and the disbursement of monies in support of public activities and welfare. Finance is also used to refer to the field of macroeconomics which studies the movement of goods and services through the economy. Thus, both economics and finance are important aspects of the market system and are interrelated.
The study of the world economy is largely reliant on finance because it provides the basis for the determination of prices, production and consumption elasticities, inflation, government finances, macroeconomic theories, and the balance of payments. Finance is often considered to be one of the most abstract areas of study in all of college-level business studies. The reason for this is that unlike most subjects where the student has little or no direct control over the materials being evaluated, finance is a very visible and pertinent part of virtually every sector of the global economy. Finance, therefore, must be handled with care and the proper methodologies must be in place for a student to be able to perform a wide variety of analysis regarding a wide variety of financial topics.
A wide range of institutions are involved in finance and include banking, insurance, venture capitalists, investment firms, private equity firms, and securities brokerage houses. Private individuals are the major source of finance by far, although the Federal Reserve is also an active participant in the economy. Most of the large banks in the United States are either members of banking associations or closely related to ones that are. Money management and investment techniques, the two most important components of contemporary finance, are discussed extensively in depth in the curriculum of many business schools.
The study of personal finance is intimately tied to the study of the global economy. Individuals use personal finance to make purchasing decisions, take out loans and invest in stocks and other assets. Because of its ties to the global economy, personal finance is one of the more important subcategories of modern financial theory. Unlike traditional economics, however, personal finance does not attempt to give a single explanation for the emergence and expansion of the global economy. Rather, it attempts to explain why different people within and beyond the boundaries of nations develop and interact with one another as they do.
Another main article focusing on this field deals with behavioral finance. Behavioral finance is one of the most widely studied, but less applied, fields in modern financial economics. The main article focuses on explaining what behavioral finance is and how it differs from the main article focused on personal finance. The articles end with several case studies and examples that show how behavioral finance is at work in everyday life.
The third main article examines the role of stock markets in modern day financial management. In addition to stock market trading, the stock market indirectly supports many aspects of modern day financial management. This article provides a basic introduction to the concept of stock options and short sales, and the historical track record of the option market on the decline and rise of interest rates. Finally, the article discusses some of the different types of securities available and their relation to finance as a whole.