What is finance?

The term finance is used to describe the study, management, and creation of things that contribute to the financial system, such as money, banking, credit, investments, assets, and liabilities. Most people categorize finance into three types: public finance, corporate finance, and personal finance. Furthermore, there is also another field that proposes psychology-based theories or the “human” side of finance, which is called behavioral finance.

The public finance discusses the tax systems, government expenditures, debt issues, stabilization instruments, budget procedures, and other government concerns in terms of money. The corporate finance is involved with the management of assets and debts, understanding stocks and bonds, and investments from investors and capitalists. The personal finance is all about an individual’s income, expenses, and having enough money for savings. The behavioral finance is a field that proposes theories that try to explain the anomalies behind the stock market.

In the field of finance, you will surely hear about financing, which is about providing funds for business activities. The entity that provides capital to businesses, consumers,and investors are the financial institutions and banks. This field is also a vital part in discussing finance and whichever economic system because this is the method used by companies when they don’t have the ability to purchase products that they need to run their business.

Financing has two main types: debt and equity. Everyone surely knows about debt. Some people might find it surprising that huge companies need to pay back their debts but this is common in the business world. Most companies prefer to use this method to buy new things rather than raising capital because of tax considerations. On the other hand, equity is money borrowed from an entity but doesn’t need to be paid back. The repayment will be relinquishing ownership to the shareholder. Just like everything, both of these have their own advantages and disadvantages. For finance operations, most companies use both types of financing.