Introduction
Finance deals with management of money, assets and resources to optimize wealth, mitigate risks and achieve financial goals. Finance plays an important role in defining and shaping the economic landscape of an individual, an organization and an entire nation. It encompasses a diverse range of scope with distinct focus and significance. Finance incorporates personal finance strategies to corporate financial management. Some of the major areas of finance are:
- Corporate Finance
- Investment
- International Finance
- Personal Finance
- Financial Market and Institutions
- Risk Management and Insurance
Corporate Finance
Corporate finance is an important part of finance which basically deals with financial decision making by businesses, organizations or corporations to effectively utilize the resources and to achieve the financial objective. This finance includes:
- Capital Budgeting
- Capital Structure Management
- Financial Planning and Analysis
- Working Capital Management
- Risk Management
- Maximizing Shareholder Value
- Strategic Decision Making
Investment
Investment is crucial in finance. In simple terms, investments involve the allocation of resources (specifically financial resources) and funds with an expectation to generate higher return over the period of time. Investment may take many forms such as purchasing stock, bonds, real estate, mutual funds and other financial assets. Investment is essential for wealth accumulation, generation of income, fulfilling financial goals, planning for retirement, diversification of portfolio etc.
International Finance
It is another area of finance which deals with global management of money and funds. International finance deals with financial interactions and transactions within or across the countries. International finance interconnects the world economy with opportunities and fuels economic growth and globalization. Understanding international finance includes:
- Globalization and Trade
- Risk Management
- Foreign Exchange Market
- Foreign Direct Investment and Foreign Portfolio Investment
- Global Financial Institutions
- Financial Crisis
- Economic Interdependence
Personal Finance
Personal Finance is important and focuses on individual management of financial resources. This finance includes personal financial goals, managing income, expenses, investments, debts and planning for the future. Significance of personal finance can be:
- Financial Literacy
- Budgeting
- Debt Management
- Risk Management
- Tax Planning
- Financial Security
- Retirement Planning
Risk Management and Insurance
Risk management and insurance is that area of finance which focuses on identifying, assessing and mitigating risks of individuals, businesses and organizations. This also focuses on strategies which protect the assets and reduce the financial losses. This area of finance includes:
- Risk Identification
- Risk Assessment
- Risk Management
- Risk Transfer
- Risk Avoidance
- Financial Protection
- Wealth Preservation
- Risk Reduction
Financial Market and Institutions
Financial markets and institutions are the spine of the global financial ecosystem. They are the intermediaries or platform where the global financial ecosystem performs. Such markets and institutions are crucial in understanding the role of finance. Such intermediaries play a pivotal role in managing resources, easing economic growth and managing risks. Financial markets and institutions are responsible for:
- Capital Allocation
- Liquidity
- Risk Management
- Economic Growth
- Investor Protection
- Globalization
- Monetary Policy Transmission