The economy is a social institution that organizes a society's production, distribution, and consumption of goods and services, all of which must be financed. Asset allocation, the mix of investments in the portfolio, is also fundamental here.Īlthough they are closely related, the disciplines of economics and finance are distinct. Ī major focus within finance is thus investment management – called money management for individuals, and asset management for institutions – and finance then includes the associated activities of securities trading and stock broking, investment banking, financial engineering, and risk management.įundamental to these areas is the valuation of assets such as stocks, bonds, loans, but also, by extension, entire companies. I.e., the financial markets that allow the flow of money, via investments and other financial instruments, between and within these areas this "flow" is facilitated by the financial services sector.įinance therefore refers to the study of the securities markets, including derivatives, and the institutions that serve as intermediaries to those markets, thus enabling the flow of money through the economy. Īt the same time, and correspondingly, finance is about the overall "system" Finance is then often divided into the following broad categories: personal finance, corporate finance, and public finance. Specifically, it deals with the questions of how an individual, company or government acquires money – called capital in the context of a business – and how they spend or invest that money.
Finance is a term for the management, creation, and study of money and investments.
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