Finance is a broad term encompassing a range of things regarding the making, managing and accumulation of financial investments and money. The major area of finance is the stock markets where shares of different companies are sold in order to create funds for growth or as a source of revenue for the company. Investors and savers both have money accessible to them that can make dividends or interest payments when placed to very productive use. Finance is affected by government policies such as taxes and borrowing costs. Publications and reports in the media about financial situations are also an important part of the field of finance.
In simple terms, the goal of all financial activity is to create more money for its investors and savers – to raise money for the purpose of investments or furtherance of the goals and policies of the firm. All the various financial instruments are used to achieve this end; for instance, financial markets, stock markets, bond markets, commodity markets and so on. Financial instruments may also refer to those aspects of the financial system that deal with the distribution of risk among potential investors and savers.
A wide variety of processes and institutions fall under the ambit of finance. These include government organizations, corporations, banks, insurance companies, investment firms, securities dealers and so on. Within these broader arenas, there are various specializations. One of these is risk management. Financial economics offers an account of the principles of risk management as it applies to the financial markets.
The modern financial arena consists of a wide range of activities. It includes activities such as savings, lending, trading, mortgage banking, securities issuance, portfolio management, credit, corporate finance, insurance and commodity markets. One of the most prominent fields of Finance is banking. Banking as a sector itself comprises various specific segments such as savings, commercial, investment grade, market risk and international banking. Within the broader context of Finance, the term ‘banking’ refers to the financial activities of creating, packaging, servicing, disposing of customer obligations, borrowing, creating retail financial products such as loans, investing in assets and so on.
The subject of risk management is an important one. As it is the essential ingredient of all the processes within the Finance domain, there is much discussion and analysis on this subject. The main article to discuss in this regard is the experimental finance. The experimental finance attempts to test the effects of a particular change in one variable or in one financial instrument on the other variable, in terms of the same economic agent. The paper by van Loan and Knutsford (1976) is an excellent example of an experimental finance. This article discusses in detail the theoretical framework of this type of analysis, its application in real world situations and the main theoretical insights discussed.
Finally, it should be mentioned that the term ‘finance’ does not conform to a single definition. It is used to refer to a set of related approaches and techniques, including financial management, economics, accounting and also law and business. In addition, it is important to realize that even though these approaches overlap, many approaches to financial management are at least partially independent of each other. Some critics of the current model of financial management use techniques that do not actually fit into any of the previously defined approaches.