Know everything about finance?

Finance is a major and vast topic to cover. Accounting and finance are often used together, and some even consider it to be similar. But there is a significant difference between the two.

In fact, finance is a broad term used to describe money management and the process involved in acquiring funds. Finance encompasses banking, credit, investment, assets and liabilities that make up financial systems.

Three main areas of finance have developed institutions, procedures, standards and specialized objectives: business Finance, personal finances et public finances.

In developed countries, an elaborate structure of financial markets and institutions exists to meet the needs of these areas jointly and separately. So, let's understand what finance is?

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🥀 What is Finance?

Finance is the allocation of assets, liabilities, and funds over time, processes, and media to get the most out of the business. In other words, managing or multiplying the funds to the best of the interests while dealing with risks and uncertainties.

Finance is closely linked to money since it is a means of exchange. The financial sector is the engine of economic, social and administrative industries. From savings to financial institutions and from government taxes to equity, the finance function can be seen in all activities and processes.

Here are some of the standard definitions of finance:

• In economy, finance is a branch of economics that deals with the allocation, management, investment, and acquisition of resources.
• In the business, finance is defined as the raising of funds by issuing and selling stocks or debt.
• In science, finance involves the creation, management and study of money. It also encompasses banking, credit, liabilities, assets and investments.
• Experts describe finance as the allocation of assets by people working overtime under certain and uncertain conditions. They believe that assets are valued according to their level of risk and their rate of return.
• Based on the systems perspective, finance includes financial systems such as public, private and governmental institutions. It is also the study of finance and financial instruments.

🥀Terms associated with the financial industry

There is a wide range of terms and topics associated with financial systems. Here is a list of some of them that you are most likely to encounter in the industry:

• Risk and return
• Profit
• Financial state
• Shareholders
• Behavioral finance
• Cost of capital
• Cash flow
• Interest rate
• Dividends
• Performance

Now let's learn more about the three types of finance. Let's start with personal finance, then business finance and finally, public finance

🥀 What is Personal Finance?

Personal finance manages an individual's finances or funds and helps them achieve their desired savings and investment goals. Personal finance is specific to individuals and strategies depend on individuals' earning potential, requirements, goals, timeline, etc.

Personal finance includes investing in education, assets such as real estate, cars, life insurance policies, medical and other insurance, savings, and expense management.

Specifically, personal finance includes:

• Protection against unforeseen and uncertain personal events
• Transfer of wealth through the generations of the family
• Tax management and compliance with tax policies (tax subsidies or penalties)
• Prepare for retirement
• Prepare for long-term expenses or purchases involving a huge amount
• Payment of a loan or debt
• Investment and Wealth Building Objectives

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🥀 What is Corporate Finance?

Corporate finance involves financing business expenses and building the capital structure of the business.

It deals with the source of funds and the channeling of these funds, such as allocating funds for resources and increasing the value of the company by improving the financial situation.

Corporate finance focuses on maintaining a balance between risk and opportunity and increasing asset value. Business financing includes:

• Capital budgeting, here is how to do budget planning
• Use of standard techniques business valuation or real options valuation
• Identify the funding source in the form of equity, equity, creditors, debts
• Determine the usefulness of profits unrestricted for future investment, operational use or distribution to shareholders
• Acquisition and investment in shares or other assets
• Identify goals, relevant opportunities and constraints
• Risk management and tax considerations
• Issue of shares upon IPO and stock exchange listing

🥀 What is Public Finance?

This type of financing is tied to the states, municipalities, provinces or regions, in short, to the finances required by the government. It includes long-term investment decisions related to public entities.

Public finance takes into consideration factors such as income distribution, resource allocation and economic stability. The funds come mainly from taxes, loans from banks or insurance companies.

Public Finances include:

• Identification of expenses required by the public entity
• Sources of income of the public entity
• Determine the process budgeting and source of funds
• Debt issuance for public projects
• Fiscal management

The other two famous terms in finance are microfinance and trade finance.

🥀 What is microfinance?

Microfinance is more perceived from the angle of microcredit. This type of financing is specially designed for people who do not have easy access to traditional financial services. These people include the unemployed and people from low income groups, women, etc.

Banks may even offer additional services such as savings accounts, microinsurance and training. The main objective of microfinance is to offer these people the opportunity to become independent.

Lenders often grant loans after pooling borrowers to ensure a better probability of repayment. The repayment amount of these microcredits is higher than that of conventional financing because of the risk involved.

Microfinance includes:

• Checking account et bank savings
• Educational programs on the principles of investing
• Training in skills such as accounting and bookkeeping, including cash flow management, income statements, etc.
• Basic money management training
• Lessons on financial terms and concepts like interest rate, cash flow, budget, debt, etc.

🥀What is Trade Finance?

Trade finance includes financial services and instruments that enable and facilitate international trade. It is ideal for importers and exporters to conduct smooth international transactions by reducing risk in global trade.

Trade finance can help reduce the risk associated with global trade by balancing the differing needs of an exporter and an importer.

The risks associated with international trade are currency fluctuations, non-payment by the party, political instability, solvency of the parties, etc. Trade finance involves a third party to complete a transaction, eliminating procurement and payment risk.

In trade finance, the exporter receives payment as per the agreement and the importer can avail a credit facility to fulfill the trade order. Besides protecting against risks, non-payment and non-receipt of goods, trade finance also improves efficiency and revenue.

It allows the business to receive cash payment based on trade receivables because the buyer's bank guarantees payment. This also ensures timely payments and assured shipment of goods.

🥀 What are instruments in finance?

To benefit from financial services, an individual or a company needs financial instruments. A financial instrument is a contract between two parties and involves monetary activities.

The financial instruments can be used for investment purposes or for lending and borrowing purposes. Financial instruments are classified either as Cash instruments or as Derivative instruments:

🥀 What are Cash Instruments?

The value of Cash Instruments is determined by market forces. Cash instruments are easily transferable instruments between the parties. These can be securities, loans or deposits.

The different types of cash instruments available in the market are certificates of deposits, repurchase agreements like repo, bills of exchange, interbank loans, commercial paper, electronic securities and many others.

🥀What are derivatives?

The value of Derivative Instruments is derived from the valuation of another entity which may be an asset, or an index, or any other factor that may influence the value of the derivatives. The different types of derivative instruments available on the market are futures, forwards, swaps and options.

Financial instruments are also classified according to their asset class. Financial instruments can be debt- or equity-based.

A debt-based instrument comes in the form of loans that the issuing party asserts to investors. Whereas, equity-based instruments reflect ownership based on the share of equity held by an investor.

Debt-based financial instruments include bonds, bond futures and options, interest rate swaps, Treasury bills, interest rate futures and forward rate agreements .

🥀 Make a career with Finance

The financial meaning, definition and characteristics would be incomplete without looking at the career options available in the financial sector. Here is a list of 10 finance career paths:

1. Commercial bank

Commercial banking offers a wide range of financial services such as checking accounts, savings accounts and loan facilities for individuals and businesses.

The most popular positions in retail banking are credit analyst, loan officer, bank teller, mortgage banker, branch manager, and trust officer.

Commercial banks create room for growth as workers move into higher positions with decent pay.

2. Business financing

Corporate finance focuses on managing the financial activities of a business. It is about raising funds and channeling those funds to maximize the profitability of the business. Depending on this choice you can be treasurer, financial director, Financial Analyst or tax manager.

3. investment bank

This is a top financial career in the industry. Investment banking deals with primary transactions, merger and issuance of securities such as stocks, shares and bonds for purchase by investors in the market.

Investment banks help raise capital for businesses, governments, and institutions. A career in investment banking is quite competitive, requiring proficiency in financial skills with excellent negotiation skills and confidence.

There are many divisions an investment banker can work in. They may work as a qualitative research analyst, trading securities in the market.

4. Insurance

Insurance protects individuals and businesses against potential risks and circumstances. Popular roles in insurance include insurance sales representative, customer service specialist, or actualist who calculates risk and standard rate based on probabilities gathered from financial trends.

5. Equity Research

Another top career in finance is equity research. Equity research deals with the in-depth stock analysis, valuation and financial modeling of a company.

An equity research analyst helps investors make critical financial decisions, especially when it comes to investing. The analyst suggests the investment to buy, hold or sell to the investors.

They also do research reports and projections. To excel in this area, you will need a lot of patience and an increased level of ethical values.

6. Wealth Management

Compared to investment banking, wealth management focuses on providing financial services to the affluent and less wealthy. Wealth management is simply defined as the management of money.

Wealth managers make money by charging fees for services rendered. In wealth management, clients can manage a brokerage account with access to tax, estate and retirement planning.

7. Mortgages/loans

A mortgage is an act of offering loan services to individuals who wish to purchase a house or property. The borrower must repay the loan with interest over the years until he becomes the owner of the property.

Mortgage brokers present themselves as intermediaries between financial institutions and potential homeowners. Customers are offered loan options from numerous lenders.

Clients compare loans and extract buyers' financial and employment details. Mortgage brokers guide clients through their loan options and ensure the process is in accordance with rules and regulations.

8. Enviromental compliance audit

Audit refers to the inspection, evaluation, examination and financial analysis to establish financial statements. This financial system helps in managing funds, reducing costs, increasing revenue and business decision making.

It verifies that individuals and businesses comply with tax codes and financial policies.

Auditors can work in the public sector, financial organizations and universities. There are different types of auditors: internal auditor, external auditor, government auditor and judicial auditor.

9. Accounting

Accounting involves budgeting, daily financial reporting, and data analysis for the growth of any business. Accounting professionals can work as financial managers, auditors, financial accountants, and management accountants.

10. Treasury

Cash deals with the financial capabilities of any business for the success and proper functioning of the business. It gives an accurate future forecast and forecasts the necessary funds for the business.

Treasury professionals have diverse career opportunities they can delve into. They can work in large or small organizations around the world. Regardless of the industry, these professionals can work anywhere.

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