Finance is a broad term used to describe various things about the science, development, and management of finances and financial investments. In particular, it covers the questions of who gets the funds necessary for different activities, such as an investment or a project, how that money is used, and why an entity, business or government get the funds. Essentially, finance seeks to answer these questions through a detailed analysis and explanation of the process by which the funds are acquired, how they are spent or invested, and what are the implications of those activities thereafter. While all of this is indeed detailed and intricate, it is not something that can be easily understood without having some knowledge about the world of finance itself.
There are three main branches of the world of finance: private finance, public finance, and corporate finance. Private finance refers to those aspects of finance that are concerned with investing in assets that do not represent the worth of the borrower as a whole; therefore, it borrows money from individuals, corporations, the government, and other sources. Public finance is the portion of finance that is devoted to the overall support of the nation’s institutions of higher education, research, technology, and other areas. Corporate finance is generally not the same as bank financing, because those aspects are usually dealt with by banks, though some large corporations do have their own internal banks.
One branch of public finance that is similar to banks is bond and certificate of deposit (CD) marketplaces. Bonds are debt securities issued by the government or by a municipal instrumentality like a local country club or school. Certificate of deposit (CD) are financial instruments issued by banks and other large financial institutions. CD’s are a type of savings account that is tied to the performance of a particular financial institution; the more interest that a bank earns on CD’s, the more money the institution earns. As with bonds, the interest rate varies according to the state of the economy.
The main article in this series will be on the subject of financial markets, which is just one part of the larger field of economics. This series is also about Money, Markets, Currencies, and Bank Finance. To get a good understanding of all these things, a good college degree in economics is a good idea, and reading Mises, Reinhart, and Rogoff’s trilogy about the subject is highly recommended. To get a better understanding of the subject matter, my favorite book is Taylor, Atkins, and Stallings.
These three books are the keystones of the study of modern finance, because they describe in great detail how the finance industry works and why it behaves the way it does. There are three main parts to the modern financial system: banking, capital markets, and personal lending. Banking, or the creation and distribution of loans, is an important function of the financial system. Capital markets are where a bank makes loans against its currency, and banking is the creation and evaluation of mortgage backed securities.
Personal lending is the creation and distribution of loans between individuals. This part of the system is called private lending. The creation and evaluation of securities, which are the securities that you buy with your loan, is called securities brokerage. The last main article in this series will be about international finance. This part of the field is much more complicated than I can explain, but I hope I’ve given you a good foundation to understand this exciting world of finance. Good luck and have fun.