1.2:
Areas of Finance
Finance includes various areas for managing funds and assets effectively.
The three prominent domains within finance are business or corporate finance, investments, and financial markets.
Business finance deals with the financial decisions made within a company to manage its overall financial health.
For example, consider Apple Inc.
Their business finance primarily focuses on financial decisions such as investing in research and development, acquiring new technologies, and expanding into new markets.
Investments involve allocating money into assets such as stocks, bonds, real estate, or mutual funds with the expectation of generating returns based on risk tolerance and financial goals.
Individuals may choose to invest in the stock of Apple Inc. because they believe in the company's growth potential.
Financial markets are platforms where buyers and sellers trade financial assets such as stocks, bonds, currencies, and commodities.
For instance, when investors trade Apple stock on the NASDAQ exchange, they participate in the stock market, which is an example of a financial market.
All three areas of finance are closely interconnected, so a comprehensive understanding of these areas is essential.
1.2 Areas of Finance
Finance is a broad field with several key domains, including business or corporate finance, investments, and financial markets.
Corporate finance deals with the financial activities related to running a corporation. It maximizes shareholder value through long-term and short-term financial planning and various strategies. The goal is to balance risk and profitability while attempting to maximize an entity's value.
Investment finance concerns the purchase of assets and securities. Often, individuals or institutional investors buy stocks, bonds, real estate, or other investment vehicles with the goal of earning a favorable rate of return. Key activities include assessing risk, determining asset value, and deciding how to combine investments to achieve financial goals and diversify risk.
Financial markets, which include capital, money, derivatives, and foreign exchange markets, are crucial for facilitating capital raising, enabling risk transfer, and providing liquidity in the economy. Financial markets are pivotal in determining the prices of financial instruments and thereby play a critical role in resource allocation within the economy.
Each domain interacts with others, forming a comprehensive financial system that aims to support economic stability and growth.