Finance is a broad term encompassing a range of concepts regarding the science, invention, development, and allocation of funds. In particular, it concerns issues of how and where an individual, firm or government obtains the funds necessary to undertake activities related to those activities, including the allocation of income or surplus, as well as the methods by which those funds are invested. Finance is thus a branch of accounting that seeks to describe the whole of financial activity and the methods used to detect, plan and control it.
The modern definition of finance is “the process by which financial markets promote the efficient management of economic activity”. Finance is a very broad field that includes financial markets, banking, and insurance. It also includes such things as investment theory, asset valuation, the study of corporate bonds, and risk management, just to name a few. It further encompasses various forms of the study of public finances, such as taxation, social security, health care and welfare, and mortgage banking and mortgage lending.
One of the most important areas of finance is banking. Banking influences the supply, use, and issuance of credit, both domestically and internationally. Banks deal primarily in secured borrowing, such as loans, advances, depositaries, and securities such as commercial and residential real estate and debt instruments. The largest banks in the world are usually registered with the country’s central bank, which usually regulates their activities and holds them accountable to the public. Large banks are seen as the primary source of finance, making up the majority of the financial system.
Another important area of modern financial theories is economics. Economics is closely tied to finance because both are concerned with the analysis of the factors that lead to the performance of the economy. For example, the purpose of economic policies is to increase the production of economic goods and services while minimizing the means by which economic activity results in loss. In addition to economic policies, economics also takes into consideration the distribution of income and wealth, with a large emphasis on consumption (in consumption of goods and services) and investment (such as building and equities). An advanced degree in economics is recommended for anyone seeking employment in finance, as this area is highly competitive and pays off with great job security.
The third main area of modern finance is money management and its application. Money management refers to the process of managing money to achieve specific financial goals. A good background in mathematics and financial mathematics will be helpful for a person seeking employment in finance, since it is necessary for money management to be able to forecast the amount of money coming in and going out of a given economy. An advanced degree in finance is also highly recommended for those wishing to enter management positions in finance, as these positions are demanding and fast-paced. Finance jobs often require the work to be carried out in real time, which means knowledge of accounting, economics, and other important math skills. Finance graduates with a bachelor’s degree may choose to go on to become investment bankers, finance managers, or private money managers.
A four-year bachelor’s degree is the minimum requirement for entering most undergraduate finance programs, but more advanced degrees are available at both public and private universities. A master’s degree may take two years or more to complete. Finishing a bachelor’s degree with an emphasis in finance gives students the foundation for working in finance and the ability to think critically about issues in business finances. An advanced degree in finance also enables students to capitalize on their prior academic strengths and experience in business and in financial management.