Finance is a broad term that encompasses a variety of subjects about the financial management, production, and evaluation of financial assets and liabilities. It is perhaps the most important subject in all of education, because it deals with the overall management of a nation’s financial affairs. Finance is usually taught to students as part of the statistics or business courses that are taken throughout any college’s curriculum. It has a wide variety of purposes. These purposes can be for the better understanding of various financial markets, the performance of specific markets, or the allocation of resources in the best possible manner.
Finance is primarily concerned with the control of funds. The control involves both the investment decision-making process and the utilization (or non-profit) of the funds. It also covers the measurement of risk. As an example, the general rule is that good money management means that funds are being well monitored and managed so that the risk associated with them can be reduced as much as possible. This is done through banks and other lending institutions that lend money, either by the government or by private citizens.
Proper monetary and financial system along with proper investment strategy enables the country to carry out economic activities at the desired level and in the right manner. Finance is basically involved in the allocation of funds, especially in times of emergencies, as they play a very crucial role. Proper allocation of funds helps develop an adequate funds management system in the country that ensures smooth functioning of the financial sector.
In addition to the above, finance has a major role in developing economic policies that meet the objectives of the nation. At times, governments prefer to undertake fiscal policies rather than relying on the conventional methods of central banking. The two main methods of currency financing are central banking and commercial banking. However, both these systems have certain inherent differences that can affect the development of the national money management system.
Commercial banks are usually employed for short-term cash flows and for generating interest income. They lend funds to businesses and individuals for meeting their short-term cash needs. This system has been adopted by most countries in the developed world to manage their fiscal systems. A number of financial institutions exist in the market to facilitate trade and investment. These institutions make use of both State funds and private capital resources for the development of their financial sectors.
Besides, there are three main subcategories of the finance field. These include savings & current account, business, and investment. All the three subcategories of the finance field need a considerable amount of common resource to function effectively. Among all the three main subcategories, savings & current account is the most important since it refers to the management of the non-current assets of the nation.
Business is another significant category in the finance field. It is concerned with the conversion of assets into capital gains and liabilities. This involves the investment of financial resources and the utilization of the returns of these resources to generate wealth for the nation.
The third main category of the finance aims at the allocation of the savings of the nation for the purpose of investments. One can also convert their investment funds into other forms of financial assets. The various activities of the financial institutions are mainly concerned with the generation of interest income. Apart from this, banking is another major sector that helps to manage the fiscal balance. A number of banking options exist such as bank savings accounts, credit accounts, overdrafts, deposit books, cheque accounts, cash deposits, and negotiable instruments.