Understanding the Art of Finance
Finance is a broad term encompassing many things about the study, development, management, and allocation of funds and securities. The discipline involves all aspects of financial activity human resource management, budgeting, investment, lending, managing cash resources, risk management, and investing in securities. All the areas of finance deal with dealing with money in the market and the allocation of assets for optimal utilization and growth.
Finance is a very important part of economics, but like any other part, it also has a practical part to play in one’s life. It directly influences how individuals and firms use their financial resources and it also affects the way they distribute these resources. Some areas of finance are relatively easy to understand while others are more difficult to study or to interpret. One can never be a hundred percent certain as to how an economy would be managed or how various financial instruments would perform; it is always subject to unpredictable factors such as the political structure and economic structure of a country, the prevailing circumstances on the market, etc. In such a case, finance professionals who have thorough understanding of all the fields of finance help manage and guide individuals and enterprises.
Finance is basically a branch of economics that studies the ways in which the economic system produces and utilizes economic surplus. Examples of such areas of finance are corporate finance, venture capital, private sector, financial markets, personal finance, and public sector finances. Finance thus covers a wide spectrum of activities in the market place that are effected by the economic system. Some important areas of finance are also macroeconomic in nature such as macro economics, microeconomics, international economics, fiscal economics, and so on. The major areas of research in finance include:
The field of finance deals with financial instruments that have long-term maturation cycles and they provide a ready market for efficient trading. Some examples of such financial instruments are derivatives, currency exchange rates, interest rate policy, asset management, financial markets, and so on. The major areas of specialization in finance are: personal finance, business finance, institutional finance, commodity finance, international finance, government finance, financial analysis, and tax management. The principles on which the principles of economics are based can be applied directly or indirectly to different types of finance. For example, the principles of efficiency, cost effectiveness, equality of opportunity, reliability, and consistency form the basis of tax management. Thus finance helps individuals and enterprises to plan and execute their activities according to their individual or enterprise capacity.
Accounting is one of the important aspects of finance. It involves the collection, recording, interpretation, preparation, management of financial information for decision making. Most of the activities related to accounting activities are concerned with the preparation of financial statements or reports. There are two main techniques used in the process of accounting i.e. bookkeeping and accounting systems. Bookkeeping is the method in which financial information is collected and stored for decision making and analysis of the same.
The principles of accounting are used to make financial accounting decisions. The concepts of accounting are interrelated and are interdependent with one another. A good system of accounting helps a business firm to plan efficiently its resources. This in turn enables the firm to earn profits. Proper analysis of the financial position and prudence in spending and investing of the firm’s funds enable the firm to come out with improved and strategic financial decisions. All this is possible only if the employees of the firm are committed and diligent in carrying out their responsibilities as per the instructions of the seniors.