Finance is simply a broad term which covers a number of related subjects about the study, management and allocation of funds. Specifically, it focuses on the issues of how and why a person, business or even government takes the money necessary – known as capital in the financial context – and how they then spend or save that money.
This term was first used by J.K. Galbraith, who used it to define and explain the financial activities involved in making investments, such as bonds and equities. Galbraith’s original definition of finance included three related fields, namely banking, commerce, and industrial organization.
Today’s modern day finance uses all of these fields to produce a wide array of financial products and services, as well as the instruments which make those products possible. There are also areas of specialized finance, which include international finance, business finance, commodity, financial services, international money market and financial derivatives. These special areas of finance are generally called sub-sectors.
The most important areas of finance are banking. Banks deal with loans and other types of borrowing, including commercial and private loans. There are also mortgages, securities lending, overdrafts and loans made to other entities such as organizations, businesses or governments.
Commerce is another finance sub-sector. It deals with the buying and selling of goods and services, including sales and marketing. This includes the purchase and sale of currencies and other financial products.
Industrial organization deals specifically with various industries, such as manufacturing, construction and utility. These are the industries that directly or indirectly depend on the use of money in order to keep them going. The industries also deal with labor, goods produced and services rendered. In addition, finance is an essential part of the modern world, where a large number of different sectors have to deal with finances in order to make their businesses run smoothly.
Financial derivatives are another finance sub-sector, which mainly deals with the purchase and sale of various financial products. They can be in the form of stocks, bonds, stock index futures, foreign currency exchange, treasury bills and treasury notes, among many others. All financial products, including cash, bank deposits and savings accounts, can be bought or sold through the various financial markets, depending on the conditions in each individual market.
Money is used in all the industries mentioned above, since money is the medium through which the buyers and sellers of financial instruments to conduct transactions. In addition, money serves as an economic measure, because it can be exchanged for commodities, securities or other goods and services. It also acts as a social measure, since it is used to buy and sell goods and services for monetary transactions, which then becomes a source of wealth, or income.
By providing an overview of finance, this article has provided a quick introduction to the various sub-sectors of finance, as well as the ways in which they operate. It is important to note that finance is a complex subject, requiring a detailed approach to understand and apply it correctly in order to have complete knowledge about it.