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What Is Finance?

Finance is a term for matters relating to the management, creation and study of money and investments.

It involves the use of credit and debit, securities and investments to finance ongoing projects using future income streams.

Because of this time aspect, finance is closely related to the time value of money, interest rates, and other related issues.

Finance can be broadly divided into three categories:

Public Finance
Business Finance
Personal Finance

There are many other specific categories, such as behavioral finance, which seek to identify the cognitive reasons (for example, emotional, social and psychological) behind financial decisions.

What Is The Purpose Of Finance?

Finance involves borrowing and lending, investing, raising capital, and selling and trading securities.

The purpose of these activities is to enable businesses and individuals to finance certain activities or projects today, to be repaid in the future based on the revenue streams generated by those activities.

Without finance, people couldn’t afford to buy homes (all in cash) and businesses couldn’t grow and expand like they do today.

Finance, therefore, allows for a more efficient allocation of capital resources.

What Are The Core Areas Of Finance?

Finance generally falls into these three key areas:

Public finance includes the fiscal, spending, budgetary and debt issuance policies that influence how a government pays for the services it provides to the public.
Corporate finance refers to the financial activities related to running a business or enterprise, usually with a division or department created to oversee those financial activities.
Personal finance involves financial matters for individuals and their families, including budgeting, strategy, saving and investing, purchasing financial products, and asset protection.
Banking is also considered a component of personal finance.