What are Finance? Concept, Types, and Importance
Finance is a branch of economics that studies the management of money and capital of any economic agent (State, company, family, or person). It analyzes the risks involved in exchanging these financial resources between these economic entities. The objective of finances is to correctly manage money and capital to reasonably control its resources and achieve the goals proposed at the state, business, family, or individual level.
It studies the actions of saving, investment and spending to generate profits, considering all the variables that intervene in these financial decisions. Finance encourages complete understanding to understand and also act most appropriately in areas involving capital and money management. It provides an entrance to a path of opportunities, where the different economic entities can benefit from the virtues that finance possesses and offers.
Types of Finance
Public finances are responsible for managing the economic resources of a State, taking into account the following variables: GDP, investment, deficit, and surplus. In addition, it considers public workers’ investments, taxes, and expenses to assess their impact on the general economy. The goal is to manage your resources correctly to meet statewide goals.
Private finances are responsible for managing financial resources at a personal level. However, the money and capital used to optimize your finances can come from the individual or the family. In other words, even though your planning consists of the correct management of money on a personal level, part of the source of your money may come from family money.
Private finance considers the following variables personal savings, retirement plan, personal loans, investments, and tax administration.
International finances are those that study the economy between 2 or more countries. Analyzes the financial variables that intervene at the international level to evaluate the economy of countries with economic relations.
It takes into consideration the international monetary system, global financial system, foreign investment, the balance of payments, and exchange rates.
Corporate finance analyzes the business variables that intervene in corporate areas. The objective is to make the best decisions to increase the company’s value and, with it, that of the shareholders.
Characteristics of Finance
- Finance focuses on obtaining and managing money and capital.
- Analyze the risk in any financial decision, minimizing losses and also maximizing profits.
- It studies the means of acquiring capital, its use, and the returns it obtains for its investments.
- Some critical financial concepts in finance are inflation, interest rates, opportunity costs, financial risk, economic profit, supply, and demand.
- It is helped by other disciplines such as mathematics, accounting, administration, and statistics.
- Optimizes the financial resources of any economic agent (State, company, family, and person).
Importance of Finances
Finance helps the different economic entities to manage money and also capital in a promising way, in such a way that financial decisions bring benefits to the economic authors. It helps to meet the objectives that an individual or organization has as its purpose.
It analyzes all the variables that intervene in a highly complex economic scenario, and also understanding the relationship between them, provides a strategic plan to act in the most optimal way possible. Prevents the different financial agents from making wrong decisions when starting a process that involves money and capital, be it personal, family or business.
Finance is the study and restraint of money, currency, and capital assets. It is related to, but not synonymous with economics, the analysis of production. Distribution, and consumption of money, assets, goods, and services.
Also Read: What is Ethereum? – Its work and More