Welcome to the Finance-Direct Home Page
We're glad you're visiting
our finance resource. You will find great
resources, articles, links and much more about finance. The
Menu is located at the bottom of the page.
We hope you enjoy our finance website, ~ The "Finance-Direct" Team.
|
|
About Finance
The field of finance refers to the concepts of time,
money and risk and how they are interrelated. Banks are the main
facilitators of funding through the provision of credit, although
private equity, mutual funds, hedge funds, and other organizations have
become important. Financial assets, known as investments, are
financially managed with careful attention to financial risk management
to control financial risk. Financial instruments allow many forms of
securitized assets to be traded on securities exchanges such as stock
exchanges, including debt such as bonds as well as equity in
publicly-traded corporations.
The main techniques and sectors of the
financial industry
An entity whose income exceeds its expenditure can
lend or invest the excess income. On the other hand, an entity whose
income is less than its expenditure can raise capital by borrowing or
selling equity claims, decreasing its expenses, or increasing its
income. The lender can find a borrower, a financial intermediary such as
a bank, or buy notes or bonds in the bond market. The lender receives
|
interest, the borrower pays a higher interest than the
lender receives, and the financial intermediary pockets the difference.
A bank aggregates the activities of many borrowers and lenders. A bank
accepts deposits from lenders, on which it pays the interest. The bank
then lends these deposits to borrowers. Banks allow borrowers and
lenders, of different sizes, to coordinate their activity. Banks are
thus compensators of money flows in space.
A specific example of corporate finance is the sale of stock by a
company to institutional investors like investment banks, who in turn
generally sell it to the public. The stock gives whoever owns it part
ownership in that company. If you buy one share of XYZ Inc, and they
have 100 shares outstanding (held by investors), you are 1/100 owner of
that company. Of course, in return for the stock, the company receives
cash, which it uses to expand its business; this process is known as
"equity financing". Equity financing mixed with the sale of bonds (or
any other debt financing) is called the company's capital structure.
Finance is used by individuals (personal finance), by governments
(public finance), by businesses (corporate finance), as well as by a
wide variety of organizations including schools and non-profit
organizations. In general, the goals of each of the above activities are
achieved through the use of appropriate financial instruments, with
consideration to their institutional setting.
Finance is one of the most important aspects of business management.
Without proper financial planning a new enterprise is unlikely to be
successful. Managing money (a liquid asset) is essential to ensure a
secure future, both for the individual and an organization.
Personal Finance
Questions in personal finance revolve around
* How much money will be needed by an individual (or by a family), and
when?
* Where will this money come from, and how?
* How can people protect themselves against unforeseen personal events,
as well as those in the external economy?
* How can family assets best be transferred across generations (bequests
and inheritance)?
* How does tax policy (tax subsidies or penalties) affect personal
financial decisions?
* How does credit affect an individual's financial standing?
* How can one plan for a secure financial future in an environment of
economic instability?
Personal financial decisions may involve paying for education, financing
durable goods such as real estate and cars, buying insurance, e.g.
health and property insurance, investing and saving for retirement.
Personal financial decisions may also involve paying for a loan, or debt
obligations.
Corporate finance
Managerial or corporate finance is the task of
providing the funds for a corporation's activities. For small business,
this is referred to as SME finance. It generally involves balancing risk
and profitability, while attempting to maximize an entity's wealth and
the value of its stock.
Long term funds are provided by ownership equity and long-term credit,
often in the form of bonds. The balance between these forms the
company's capital structure. Short-term funding or working capital is
mostly provided by banks extending a line of credit.
Another business decision concerning finance is investment, or fund
management. An investment is an acquisition of an asset in the hope that
it will maintain or increase its value. In investment management – in
choosing a portfolio – one has to decide what, how much and when to
invest. To do this, a company must:
* Identify relevant objectives and constraints: institution or
individual goals, time horizon, risk aversion and tax considerations;
* Identify the appropriate strategy: active v. passive – hedging
strategy
* Measure the portfolio performance
Financial management is duplicate with the financial function of the
Accounting profession. However, financial accounting is more concerned
with the reporting of historical financial information, while the
financial decision is directed toward the future of the firm.
Capital
Capital, in the financial sense, is the money that
gives the business the power to buy goods to be used in the production
of other goods or the offering of a service.
|