Finance is a broad term used to describe various things about the study, production, management, and allocation of funds. All money matters are in finance, from the income of an employee to that of a company and everything in between. A good example of the area of finance is business finance, which includes such areas as venture capital, bank lending, and insurance. The word “finance” comes from the Latin word “fornax”, which means gift or aid. It essentially refers to a discipline of studying, planning, acting, and managing money.
Today, finance has a large part to play in all areas of our lives. Financial markets include such concepts as stock markets, bond markets, the real estate market, and banking. The modern financial theories that we use today are the result of centuries of accumulated knowledge and trial and error experimentation. While certain economic theories were around during the time of the Ancient Egyptians, it was only in the latter part of the Medieval Ages that these ideas began to be put into practice. Early modern financial theories arose out of the need to understand the behavior of prices in complex markets, and to test and improve upon existing concepts and practices.
One of the main areas of modern financial theory is efficiency. Efficiency is the use of available resources to make the most of them, by the best possible use of any given system of measurement. This area of finance deals mainly with ensuring that investors allocate their money wisely, so that it can create the greatest possible return for investors. Some of the most important areas of efficiency in finance are: efficient stock market pricing, efficient loan pricing, efficient banks, efficient individual asset pricing, and efficient governmental regulation. There are many other important areas of finance and economy that are related to efficiency, including efficiency in government programs and spending, efficiency in schools and hospitals, and efficiency in the tax system.
Another area of modern finance is money management. Money management deals with the entire process of saving, creating, and spending one’s money. Money management also involves the entire process of debt management. The goal of money management is to secure long term wealth creation and income growth. The three main areas of money management are: savings, investment, and debt consolidation.
The third main area of modern finance is related to financial goods or services. A good example of a financial goods or service would be the stock market. All of the publicly traded companies around the world are involved in some form of finance and money management processes. The stock market itself is considered one of the most efficient systems of financial goods and services.
Finally, we will cover the area of taxation. Finance and money management play an important role in the area of taxation because of the way they are used. Finance decisions are often affected by tax considerations. Most private investors, as well as most large banks, insurance companies, and government agencies are required by law to submit their tax returns to the IRS.
