Finance is a large and broad term, covering many different areas of the financial markets and involving many different people. In simple terms, finance is the science that tells us how to get something (a commodity) from nowhere to somewhere. The term is widely used in the stock market, in the real estate market, and in international trade. Finance can be used to refer to the process by which money is made available to individuals for use; and the methods by which that money is disbursed.

Essentially, finance is the science that explains why some things are worth having and other things aren’t. In particular, it deals with the issues of why and how an organization, business or government obtains the funds necessary to do what they are intended to do-called capital in the business context. The financial services sector includes insurance companies, banks, investment firms, securities firms, law firms, accountants, payroll service providers, public administrators, and public debt relief agencies. There are many others along these lines, including consultants, marketing managers, business consulting firms, technology developers, and government administrators.

Accounting is one of the many branches of the financial services field that fall under the broader area of finance. It is primarily concerned with recording financial transactions and minimizing the likelihood of any errors. Accounting uses a variety of different techniques and systems to accomplish this task. Some of the most common accounting forms are bookkeeping, auditing, and government tax preparation.

Another branch of the finance field deals primarily with creating, trading, and ultimately managing financial products such as stocks, currencies, bonds, derivatives, mutual funds, and more. Banks are the major financial providers of bank loans and other forms of short-term financing. They are also the primary institutions through which most consumer finance transactions take place. Consumer finance refers to those activities in which consumers, businesses, and other borrowers take advantage of the credit. These activities include buying items, using loans and credit cards, and employing other financial means to obtain goods and services.

The third major area of finance that falls within the broader scope of finance is money management. Money management deals with creating, controlling, and managing the supply of money in the economy. Unlike the other subjects mentioned above, money management is not primarily concerned with the flow of funds throughout an institution or the balance of available assets. Rather, it is concerned with how the supply of money is related to the demand for it.

The fourth subcategory of finance is securities and Derivatives. Securities are instruments of trade with an asset that can be either liquid or non-liquid. Examples of securities are futures and options. Conversely, derivatives are financial instruments that allow for the transfer of an asset when its value is predicted to rise or fall in comparison to the price paid for it. Most financial institutions deal in securities and derivatives.

 

By Arlene Huff

Arlene Huff is the founding member of Golden State Online. Before that She was a general assignment reporter. A native Californian, she graduated from the University of California with a degree in medical anthropology and global health. She currently lives in Los Angeles.

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