Finance is a field related to investment studies. These include the dynamics of assets and liabilities, (known as elements of the balance report) over time under conditions of varying degrees of uncertainty and risk. Finance can also be defined as the science of money management. Market participants aim to determine asset prices based on the level of risk, fundamental value, and expected rate of return. Finance can be divided into three sub-categories: public finance, corporate finance and personal finance
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Questions in personal finance range from:
- Protection against unexpected personal events, and events in the wider economy
- Transformation of family wealth across generations (inheritance and inheritance)
- The influence of tax policies (tax or penalty subsidies) on personal financial management
- The influence of credit on individual financial position
- Development of savings or financing plans for large purchases (auto, education, home)
- Plan for a secure financial future in an environment of economic instability
- FDIC Development and Federal Reserve System
- Pursues checks and/or savings accounts
Personal finance can involve payments for education, financing durable goods such as real estate and cars, buying insurance, eg. health and property insurance, investments and savings for retirement.
Personal finances may also involve payments for loans, or debt obligations. The six main areas of personal financial planning, as suggested by the Financial Planning Standards Board, are:
- Financial position : care about the understanding of available personal resources by checking the net value and household cash flows. Net worth is a person's balance sheet, calculated by adding all assets under the person's control, minus all household obligations, at one point in time. The cash flows of households all amount from the expected source of income in one year, less any expected expenses in the same year. From this analysis, financial planners can determine to what extent and in what time personal goals can be achieved.
- Adequate protection : an analysis of how to protect households from unexpected risks. These risks can be divided into: liability, property, death, disability, health and long-term care. Some of these risks may be insured on their own, while most will require the purchase of an insurance contract. Determine how much insurance will be earned, on the most cost-effective terms requiring market knowledge for personal insurance. Business owners, professionals, athletes, and entertainers require specialized insurance professionals to adequately protect themselves. Since insurance also enjoys some tax benefits, utilizing insurance investment products can be an important part of overall investment planning.
- Tax planning : usually income tax is the largest expense in a single household. Managing taxes is not a problem if you will pay taxes, but when and how much. The government provides many incentives in the form of tax and credit deductions, which can be used to reduce the tax burden for life. Most modern governments use progressive taxes. Usually, when a person's income increases, a higher tax rate must be paid. Understanding how to make the most of tax breaks when planning one's personal finances can make a significant impact that will save you money in the long term.
- Investment and accumulated goals : planning how to raise enough money - for large purchases and life events - is what most people think of as financial planning. The main reasons for accumulating assets include buying a home or car, starting a business, paying tuition fees, and saving for retirement. Achieving these goals requires what projections they will pay for, and when you need to withdraw the funds that will be needed to achieve these goals. The main risk for households in achieving their accumulated goals is the rate of price increase over time, or inflation. Using the current net present value calculator, the financial planner will suggest a combination of asset allocations and regular savings to invest in various investments. To cope with the inflation rate, the investment portfolio should get a higher rate of return, which would normally transfer the portfolio to a number of risks. Managing these portfolio risks is most often done using asset allocations, which seek to diversify risks and investment opportunities. The allocation of these assets will determine the percentage allocation to be invested in shares (either preferred stock or common stock), bonds (eg, common bonds or government bonds, or corporate bonds), cash and alternative investments. The allocation should also take into account the individual risk profile of each investor, since the risk attitude varies from person to person.
- Retirement planning is the process of understanding how much it costs to live in retirement, and comes up with a plan to distribute assets to meet any income shortfall. The methods for retirement plans include taking advantage of government-permitted structures to manage tax obligations including: individual structure (IRA), or employer-sponsored pension plans, annuities and life insurance products.
- Housing planning involves planning for the disposition of a person's assets after death. Usually, there is a tax because the state or federal government on a person's death. Avoiding this tax means that more of one's assets will be distributed to one's heirs. A person can leave his assets to family, friends or charity groups.
Corporate finance
Corporate finance offerings with funding sources and corporate capital structure, actions taken by managers to increase corporate value to shareholders, and the tools and analysis used to allocate financial resources. Although principally different from managerial finance that studies the financial management of all firms, rather than firms alone, the main concepts in corporate finance studies apply to the financial problems of all types of companies. Company finance generally involves balancing risk and profitability, while trying to maximize the entity's assets, net cash inflows and share value, and generally requires three major areas of capital resource allocation. First, "capital budgeting", management must choose which "project" (if any) to do. The budget capital discipline may use standard business valuation techniques or even extend to the real-life option assessment; see financial modeling. Secondly, the "source of capital" is related to how the investment is funded: investment capital can be provided through different sources, such as by shareholders, in equity (privately or through an initial public offering), lenders, often in bonds, and operations company (cash flow). Short-term funding or working capital is largely provided by banks that extend credit lines. The balance between these elements constitutes the company's capital structure. The third, the "dividend policy", requires management to determine whether unused profit (excess cash) should be retained for future investment/operational purposes, or instead to be shared with shareholders, and if so, in what form. Short-term financial management is often termed "working capital management", and deals with cash management, inventory, and debtors.
Company finance is also included in the scope business assessment, stock investment, or investment management. Investment is an asset acquisition in the hope that it will maintain or increase its value over time which in hopes will provide a higher rate of return when it comes to distributing dividends. In investment management - in choosing a portfolio - one has to use financial analysis to determine what, how much and when to invest. To do this, the company must:
- Identify relevant goals and constraints: agency or individual goals, time horizon, risk aversion, and tax considerations;
- Identify appropriate strategies: active versus passive hedging strategies
- Measure portfolio performance
Financial management overlaps with the financial function of the accounting profession. However, financial accounting is the reporting of historical financial information, while financial management is concerned with the allocation of capital resources to increase the value of the company to shareholders and increase the rate of return on investment.
Financial risk management, corporate finance, is the practice of creating and protecting the economic value of an enterprise by using financial instruments to manage risk exposure, in particular credit risk and market risk. (Other types of risks include foreign exchange, form, volatility, sector, liquidity, inflation risk, etc.) This focuses on when and how to hedge using financial instruments; in this sense overlap with financial engineering. Similar to general risk management, financial risk management requires the identification of sources, measuring them (see Risk measure # Examples), and formulating plans to address them, and be qualitative and quantitative. In the banking sector worldwide, the Basel Agreement is generally adopted by internationally active banks to track, report and expose operational, credit and market risks.
Financial services
Entities whose incomes exceed their expenses may lend or invest excess revenue to help that over-income generate more income in the future. While on the other hand, entities earning less than their expenses can raise capital by borrowing or selling equity claims, reducing their expenses, or increasing their revenues. Lenders can find borrowers - financial intermediaries such as banks - or buy notes or bonds (corporate bonds, government bonds, or mutual bonds) in the bond market. The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary gets the difference to arrange the loan.
Banks collect the activities of many borrowers and lenders. The bank receives deposits from the lender, where it pays interest. The bank then lends this deposit to the borrower. Banks allow borrowers and lenders, of all sizes, to coordinate their activities.
Finance is used by individuals (personal finance), by government (public finance), by business (corporate finance) and by various other organizations such as schools and nonprofit organizations. In general, the objectives of each of the above activities are achieved through the use of appropriate financial instruments and methodologies, taking into account their institutional arrangements.
Finance is one of the most important aspects of business management and includes analysis related to the use and acquisition of funds for the company.
In corporate finance, the company's capital structure is the total combination of financing methods used to raise funds. One method is debt financing , which includes bank loans and bond sales. Another method is equity financing - the sale of shares by the company to the investor, the original shareholder (they own a part of the business) of a stock. Shareholding gives shareholders the rights and powers of certain contracts, which usually include the right to receive an announced dividend and to vote on proxies on important matters (eg, council elections). The owners of both bonds (either government bonds or corporate bonds) and shares (whether preferred shares or preferred stock), may be institutional investors - financial institutions such as investment banks and pension funds or private individuals, are called private investors or retail investors . Public finance
Public finances describe finances related to sovereign and subnational entities (state/province, district, city, etc.) and related public entities (eg school districts) or institutions. This usually includes a long-term strategic perspective on investment decisions that affect public entities. This long-term strategic period usually covers five years or more. Public finances mainly relate to:
- Identify required expenditures from public sector entities
- Source (s) of the entity's revenue
- Budgeting process
- Issuance of debt (municipal bonds) for public works projects
Central banks, such as the Federal Reserve System banks in the United States and the Bank of England in the UK, are strong performers in public finance, acting as lenders of last resort and strong influence on monetary and credit conditions in the economy.
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Capital
Capital, in the financial sense, is money that gives businesses the power to buy goods to be used in the production of other goods or services. (Capital has two types of sources, equity and debt).
Capital mobilization is determined by budget. This may include business goals, defined targets, and financial results, for example, targets set for sales, resulting costs, growth, investment required to achieve planned sales, and sources of financing for investment.
Budget may be long term or short term. Long-term budgets have a 5-10 year time horizon that provides a vision to the company; Short-term is the annual budget drawn to control and operate in a given year.
The budget will include the proposed fixed asset requirements and how these expenditures will be financed. The capital budget is often adjusted annually (done annually) and should be part of the long-term capital improvement plan.
A cash budget is also required. The working capital requirements of a business are monitored at all times to ensure that there is sufficient funds available to meet short-term expenditures.
The cash budget is basically a detailed plan that shows all the expected sources and the use of cash when spending it appropriately. The cash budget has six main sections:
- Initial cash balance - contains last year's closing cash balance, in other words, last year's cash remnant.
- Cash collection - includes all expected cash receipts (all cash sources for the period under consideration, especially sales)
- Cash disbursement - lists all planned cash flows for periods such as dividends, excluding short-term interest rate payments, which appear in the financing section. Any costs that do not affect cash flow are excluded from this list (such as depreciation, amortization, etc.)
- Advantages or lack of cash - a function of cash and cash available. Cash needs are determined by the total cash outlay plus the minimum cash balance required by company policy. If the amount of cash available is less than the need for cash, there are drawbacks.
- Financing - discloses planned loan and repayment of the planned loan, including interest.
Financial theory
Financial Economics
Financial Economics is a branch of economics that studies the interrelation of financial variables, such as prices, interest rates and stocks, as opposed to goods and services. The financial economy concentrates on the effect of real economic variables on finance, in contrast to pure finance. It centers on risk management in the context of financial markets, and the resulting economic and financial models. It basically explores how rational investors will apply risk and return to investment policy issues. Here, the twin assumptions of rationality and market efficiency lead to modern portfolio theory (CAPM), and Black-Scholes theory for option assessment; it further studies the phenomena and models in which these assumptions do not apply, or are extended. "The financial economy", at least formally, also considers investment under "certainty" (Fisher's separation theorem, "investment value theory", Modigliani-Miller's theorem) and therefore contributes to the company's financial theory. Financial econometrics is a branch of financial economics that uses econometric techniques to measure suggested relationships.
Although they are closely related, the disciplines of economics and finance are different. "Economy" is a social institution that regulates the production, distribution, and consumption of public goods and services, all of which must be financed.
Financial math
Financial mathematics is a field of applied mathematics, which emphasizes financial markets. The subject has a close relationship with the discipline of financial economics, which deals with many of the underlying theories involved in financial mathematics. Generally, mathematical financing will acquire, and expand, the mathematical or numerical models suggested by the financial economy. In practice, mathematical financing also overlaps with the computational finance (also known as financial engineering). Arguably, this is mostly identical, although the latter focuses on the application, while the first focuses on modeling and derivation ( see: Quantitative analyst ). This field is mostly focused on derivative modeling, although other important sub-areas include insurance mathematics and quantitative portfolio issues. View Financial Outline: Mathematical tools; Financial outline: Derivative pricing.
Experimental finance
Experimental finance aims to establish different market and environmental settings to observe experimentally and provide a lens in which science can analyze agent behavior and characteristics resulting from trade flows, information diffusion and aggregation, pricing mechanisms, and return processes. Researchers in the field of experimental finance can study the extent to which existing financial economics theories make valid predictions and therefore prove them, and seek to discover new principles in which the theory can be extended and applied to future financial decisions. Research can be continued by conducting trade simulations or by establishing and studying the behavior, and the way these people act or react, from people in an artificially competitive market setting.
Financial behavior
Behavioral finance examines how investor psychology or managers influence financial and market decisions when making decisions that can negatively or positively impact one of their areas. Financial behavior has grown over the last few decades to become central and very important to be financed.
Financial behavior covers topics such as:
- An empirical study showing significant deviations from classical theory.
- The model of how psychology affects and affects trades and prices
- Estimates are based on this method.
- The study of experimental asset markets and the use of models to predict experiments.
The behavioral financial thread has been dubbed the financial of quantitative behavior, which uses mathematical and statistical methodologies to understand behavioral bias in relation to judgments. Some of these efforts have been led by Gunduz Caginalp (Professor of Mathematics and Editor of the Journal of Financial Behavior during 2001-2004) and collaborators include Vernon Smith (2002 Nobel Laureate in Economics), David Porter, Don Balenovich, Vladimira Ilieva, Ahmet Dur). Studies by Jeff Madura, Ray Sturm and others have demonstrated significant behavioral effects in stock and exchange of traded funds. Among other topics, financial quantitative behavior studies the effects of behavior along with the non-classical assumption of the limitations of assets.
Professional qualification
There are several related professional qualifications, which may lead to areas:
- Generalist Finance Qualifications:
- Degree: Master of Science in Finance (MSF), Master of Finance (M.Fin), Master of Financial Economics, Master of Applied Finance, Master of Liberal Arts in Finance (ALM.Fin) Certification: Chartered Financial Analyst (CFA), Certified Treasury Professional (CTP), Certified Valuation Analyst (CVA), Certified Patent Valuation Analyst (CPVA), Chartered Business Valuator (CBV), Certified International Investment Analyst (CIIA), Finance Risk Manager (FRM), Risk Manager (PRM), Corporate Treasurer Association (ACT), Certified Markets Analyst (CMA/FAD) Double Appointment, Corporate Finance Qualification (CF), Chartered Alternative Investment Analyst (CAIA), Chartered Investment Manager CIM)
- Qualified accountants: Chartered Certified Accountants (ACCA, UK certification), Chartered Accountant (ACA certification - England & Wales/CA - in Scotland and Commonwealth countries), Certified Public Accountants (CPA, certified AS), ACMA/FCMA (Associate/Fellow Chartered Management Accountant) of the Chartered Institute of Management Accountants (CIMA), UK. Certified Management Accountant (CMA) from the Institute of Management Accountants, US certification.
- Non-statutory qualifications: Chartered CCA Costers Accountant from AAFM
Unsolved issues in finance
When the debate over whether finance is an art or science is still open, there have been recent attempts to organize a list of unsolved issues in finance.
See also
- Financial outline
- The 2007-2010 financial crisis
- List of unsolved issues in finance
References
External links
- Media related to Finance on Wikimedia Commons
- Learn Financial Step by step with infographic tools
- OECD is working on the financial markets Observation of the UK Financial Markets
- The Wharton Finance Knowledge Project - aims to offer free access to financial knowledge for students, teachers and self-learners.
- Professor Aswath Damodaran (Stern Business School New York University) - provides resources covering three areas of finance: corporate finance, assessment and investment management and syndicated financing.
Source of the article : Wikipedia
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