Learning About the Economics of Finance
Finance is a wide term encompassing all things concerning the study, production, management, and distribution of financial resources. In simple terms, it refers to the science of funds, their analysis, allocation, management, investment, and the utilization of financial means. Finance is also the science of making choices about how to best use the present supply of funds to produce the most optimal results for a given set of circumstances. If this science has one goal, however, it must be to enable individuals and institutions make the most prudent use of the financial resources they currently have to produce the most useful and efficient results for their goals and objectives.
What exactly is finance? In everyday language, it is not hard to see how finance refers to the various ways people make payments or receive payments. A loan, for example, is money borrowed from a lender in order to purchase goods or services. A salary is paid to employees in return for them taking on a certain number of jobs. A grant may be awarded to help people start a business, and an insurance company may pay health benefits to its employees. All of these kinds of financial transactions are examples of finance.
Another branch of finance that encompasses many aspects of the economy is public finance. Public finance generally deals with the provision of services by governmental bodies, organizations, and individuals. Some areas of public finance commonly cover tax administration, regulation of financial organizations such as banks and insurance companies, development of the economy, and management of natural resources. Public finance also includes governmental spending on infrastructure, technology, education, and social programs.
Corporate finance, on the other hand, is more often related to large businesses, partnerships, or corporations that are financially supported by a single firm. This type of finance includes the financing of business ventures by investors. The sources of capital that can be used in corporate finance can be a variety of things, including stock portfolios, corporate bonds, short-term loans, equipment, property, and purchases. Much of this type of financing occurs in a structured manner. Investors typically sell company stocks at a price that is considered less than the value of what they have invested in the company.
Public accounting is one of the many different areas of finance that fall under the larger field of economics. The study of corporate finance, for example, has made much progress over the past few decades, as the field of economics itself has become more complicated. Accounting works with the reporting of financial information to provide managers and investors with accurate information about the performance of a company. While the entire process of making investments, in terms of managing risks and finding attractive investments, falls under the scope of corporate finance, the principles of economics play into how managers make those decisions.
All the three branches of economics are important to the financial health of the nation as a whole. Without proper investments, the national economy will suffer. At the same time, however, without economic growth, the government will not be able to maintain its footing and may even collapse. The key to the matter is proper management of the risks inherent in the field of finance. It is through this study that public officials and private citizens are able to determine the best way to ensure that investments are sound.