Happy Sunday Everybody! And welcome back again! We hope everyone is enjoying the New Year as much as I if not pleased don’t lose hope! Now, as some of you may know I currently mentor at ASU as a business development coach and thanks to the past few weeks plus over 10 years in the nonprofit industry, I decided to write this little number to elaborate on many questions I get in the daily life. So, without further adieu, What is the Finance Industry and the 4 Main Areas of Finance?
Finance is defined as the management of money and providing of funding for individuals, businesses, and governments.
The financial system includes the lending of funds, management of investments, and the circulation of money. The health of an economy is mainly dependent upon the efficiency of its finance industry. The country is safer when its economy is better. A weak finance industry generally indicates a declining economy.
What is the Finance Industry?
The finance industry is a section of the economy made up of institutions and firms that offer financial services to retail and commercial customers. This industry comprises a wide variety of niches, including banks, real estate firms, insurance companies, and investment companies. As mentioned above, a strong finance industry is an indication of a healthy economy. The finance sector thrives in a low-interest-rate environmentand generates a significant portion of its overall revenue from mortgages and loans.
The 4 Main Areas of Finance
The 4 main areas of finance are investments, financial markets and institutions, corporate finance, and international finance.1. Investments
Investments are a key area of finance.
Within a business, especially a large one, the firm invests in assets that range from short-term securities, e.g. marketable securities, to long-term securities, e.g. bonds and stocks. The business invests in order to earn a return.
The primary objective of someone who works within the investments area of finance is to identify mispriced assets. These professionals use asset pricing models as well as other tried and tested methods to estimate the worth of an asset.They then compare it to the up-to-date value of the market. If there’s a huge difference between the current market price and the estimated price, the investor will either sell the asset or buy the asset.2. Financial Markets and Institutions
Another major area of finance are the financial markets and institutions.
Financial markets are the bond and stock markets, the money and capital markets, and the primary and secondarymarkets, to name just a few ways they are classified.
Financial markets help facilitate the transfer of funds between users and savers of funds. Users are generally the government and businesses and savers are usually households. In case of stock market, that specific financial market offers a seamless exchange of ownership of a company between one business or individual and another.
The financial institutions work alongside financial markets when it comes to financial transactions. These institutions are actually financial intermediaries that help make transfer of funds between savers and businesses.3. Corporate Finance
Also known as business finance, corporate finance is related with the business firm’s financial allocation and decision. It deals with the financing management and acquisition of firm’s assets that maximizes the wealth of its shareholders.
Corporate finance is about funding the expenses of the company and building its capital structure.
This key area of finance deals with the source of funds and the channelization of those funds such as allocation of funds for resources and improving the financial position of the company to increase its value. Corporate finance focuses on maintaining a balance between the opportunities and risk as well as increasing the asset value. Some key areas of corporate finance within a business firm include financial statement development, financial analysis, managing working capital, and budgeting.4. International Finance
International finance may sound like a complicated, extravagant word to some, but its definition is quite the opposite.
In simple terms, it is an area of finance related to the monetary interactions between two or more countries. If the payment and receipt locations are in different countries, then the transaction falls into the international finance category.
International finance concerns itself with wide range of topics e.g. currency exchange rates, foreign direct investment, international financial systems, and problems of international monetary management e.g. foreign exchange risk and political risk characteristic of managing multinational corporations. International finance can help promote moderate domestic macroeconomic volatility, domestic financial sector development, boost trade, and foster economic growth.
Conclusion, What is the Finance Industry?
The finance industry is the backbone of a country’s economy and there are four main areas of finance that play a vital role in the overall economy of the world. The finance industry as a whole is vast and includes businesses, individuals, and governments engaged in various activities. The above-mentioned four areas of finance are taught in colleges and universities. Business professionals on the other hand, work in each of these major areas for the good of their business firm.
As always we hoped you not only enjoyed this quick reference, but learned something as well. As Black Sheep we strive to grow and learn, day in and day out to only expand our knowledge base, but to expand our way of thinking to ascertain a different perspective. “Till next time”-The Black Sheep
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