Contents
1 Overview of techniques and sectors of the financial industry
2 Areas of finance
2.1 Personal finance
2.2 Corporate finance
2.3 Finance of public entities
2.4 Financial risk management
3 Finance theory
3.1 Financial economics
3.2 Financial mathematics
3.3 Experimental finance
3.4 Behavioral finance
3.5 Intangible Asset Finance
4 Related professional qualifications
5 See also
6 References
7 External links
Overview of techniques and sectors of the financial industry
Main article: Financial services
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 receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary earns the difference for arranging the loan. A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity. Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance) and by a wide variety of other 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 and methodologies, with consideration to their institutional setting. Finance is one of the most important aspects of business management and includes decisions related to the use and acquisition of funds for the enterprise. In corporate finance, a company's capital structure is the total mix of financing methods it uses to raise funds. One method is debt financing, which includes bank loans and bond sales. Another method is equity financing - the sale of stock by a company to investors, the original shareholders of a share. Ownership of a share gives the shareholder certain contractual rights and powers, which typically include the right to receive declared dividends and to vote the proxy on important matters (e.g., board elections). The owners of both bonds and stock, may be institutional investors - financial institutions such as investment banks and pension funds - or private individuals, called private investors or retail investors. Areas of finance
Personal finance
Main article: Personal finance
Questions in personal finance revolve around
How much money will be needed by an individual (or by a family), and when? 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
Main article: 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). Corporate finance generally involves balancing risk and profitability, while attempting to maximize an entity's wealth and the value of its stock, and generically entails three interrelated decisions. In the first, "the investment decision", management must decide which "projects" (if any) to undertake. The discipline of capital budgeting is devoted to this question, and may employ standard business valuation techniques or even extend to real options valuation; see Financial modeling. The second, "the financing decision" relates to how these investments are to be funded: capital here is provided by shareholders, in the form of equity (privately or via an initial public offering), creditors, often in the form of bonds, and the firm's operations (cash flow). Short-term funding or working capital is mostly provided by banks extending a line of credit. The balance between these elements forms the company's capital structure. The third, "the dividend decision", requires management to determine whether any unappropriated profit is to be retained for future investment / operational requirements, or instead to be distributed to shareholders, and if so in what form. Short term financial management is often termed "working capital management", and relates to cash-, inventory- and debtors management. These areas often overlap with the firm's accounting function, however, financial accounting is more concerned with the reporting of historical financial information, while these financial decisions are directed toward the future of the firm. Finance of public entities
Main article: Public finance
Public finance describes finance as related to sovereign states and sub-national entities (states/provinces, counties, municipalities, etc.) and related public entities (e.g. It is concerned with:
Identification of required expenditure of a public sector entity
Source(s) of that entity's revenue
The budgeting process
Debt issuance (municipal bonds) for public works projects
Financial risk management
Main article: Financial risk management
Financial risk management is the practice of creating and protecting economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. (Other risk types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc.) It focuses on when and how to hedge using financial instruments; in this sense it overlaps with financial engineering. Similar to general risk management, financial risk management requires identifying its sources, measuring it (see: Risk measure: Well known risk measures), and formulating plans to address these, and can be qualitative and quantitative. In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracking, reporting and exposing operational, credit and market risks. Finance theory
Financial economics
Main article: Financial economics
Financial economics is the branch of economics studying the interrelation of financial variables, such as prices, interest rates and shares, as opposed to those concerning the real economy. Financial economics concentrates on influences of real economic variables on financial ones, in contrast to pure finance. It centres on decision making under uncertainty in the context of the financial markets, and the resultant economic and financial models. It essentially explores how rational investors would apply decision theory to the problem of investment. Here, the twin assumptions of rationality and market efficiency lead to modern portfolio theory (the CAPM), and to the Black Scholes theory for option valuation; it further studies phenomena and models where these assumptions do not hold, or are extended. "Financial economics", at least formally, also considers investment under "certainty" (Fisher separation theorem, "theory of investment value", Modigliani-Miller theorem) and hence also contributes to corporate finance theory. Financial Econometrics is the branch of Financial Economics that uses econometric techniques to parameterize the relationships suggested. Financial mathematics
Main article: Financial mathematics
Financial mathematics is a field of applied mathematics, concerned with financial markets. The subject has a close relationship with the discipline of financial economics, which is concerned with much of the underlying theory. Generally, mathematical finance will derive, and extend, the mathematical or numerical models suggested by financial economics. In terms of practice, mathematical finance also overlaps heavily with the field of computational finance (also known as financial engineering). Arguably, these are largely synonymous, although the latter focuses on application, while the former focuses on modeling and derivation (see: Quantitative analyst). The field is largely focused on the modelling of derivatives, although other important subfields include insurance mathematics and quantitative portfolio problems. See Outline of finance: Mathematical tools; Outline of finance: Derivatives pricing. Experimental finance
Main article: Experimental finance
Experimental finance aims to establish different market settings and environments to observe experimentally and provide a lens through which science can analyze agents' behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanisms, and returns processes. Researchers in experimental finance can study to what extent existing financial economics theory makes valid predictions, and attempt to discover new principles on which such theory can be extended. Research may proceed by conducting trading simulations or by establishing and studying the behaviour of people in artificial competitive market-like settings. Behavioral finance
Main article: Behavioral finance
Behavioral Finance studies how the psychology of investors or managers affects financial decisions and markets. Behavioral finance has grown over the last few decades to become central to finance. Behavioral finance includes such topics as:
Empirical studies that demonstrate significant deviations from classical theories. Models of how psychology affects trading and prices
Forecasting based on these methods. Studies of experimental asset markets and use of models to forecast experiments. A strand of behavioral finance has been dubbed Quantitative Behavioral Finance, which uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation. Some of this endeavor has been led by Gunduz Caginalp (Professor of Mathematics and Editor of Journal of Behavioral Finance during 2001-2004) and collaborators including Vernon Smith (2002 Nobel Laureate in Economics), David Porter, Don Balenovich, Vladimira Ilieva, Ahmet Duran). Studies by Jeff Madura, Ray Sturm and others have demonstrated significant behavioral effects in stocks and exchange traded funds. Among other topics, quantitative behavioral finance studies behavioral effects together with the non-classical assumption of the finiteness of assets. Intangible Asset Finance
Main article: Intangible asset finance
Intangible asset finance is the area of finance that deals with intangible assets such as patents, trademarks, goodwill, reputation, etc. Related professional qualifications
There are several related professional qualifications, that can lead to the field:
Generalist Finance qualifications:
Degrees: Masters degree in Finance (MSF), Master of Financial Economics, Master of Finance & Control (MFC), Master Financial Manager (MFM), Master of Financial Administration (MFA)
Certifications: Chartered Financial Analyst (CFA), Certified Treasury Professional (CTP), Certified Valuation Analyst (CVA), Certified International Investment Analyst (CIIA),, Association of Corporate Treasurers (ACT), Certified Market Analyst (CMA/FAD) Dual Designation, Corporate Finance Qualification (CF), Chartered Alternative Investment Analyst (CAIA)
Quantitative Finance qualifications: Master of Financial Engineering (MSFE), Master of Quantitative Finance (MQF), Master of Computational Finance (MCF), Master of Financial Mathematics (MFM), Certificate in Quantitative Finance (CQF). Accountancy qualifications:
Qualified accountant: Chartered Accountant (ACA - UK certification / CA - certification in Commonwealth countries), Chartered Certified Accountant (ACCA, UK certification), Certified Public Accountant (CPA, US certification), ACMA/FCMA ( Associate/Fellow Chartered Management Accountant) from Chartered Institute of Management Accountant(CIMA), UK. Non-statutory qualifications: Chartered Cost Accountant CCA Designation from AAFM
Business qualifications: Master of Business Administration (MBA), Master of Management (MM), Master of Commerce (M.Comm), Master of Science in Management (MSM), Doctor of Business Administration (DBA)
See also
Main article: Outline of finance
Financial crisis of 2007–2010
References
^ Gove, P. et al. 1961. Finance. Webster's Third New International Dictionary of the English Language Unabridged. Springfield, Massachusetts: G. & C. Merriam Company.
^ finance. (2009). In Encyclopædia Britannica. Retrieved June 23, 2009, from Encyclopædia Britannica Online: Finance
^ Charitytimes.com
^ Board of Governors of Federal Reserve System of the United States. Mission of the Federal Reserve System. Federalreserve.gov Accessed: 2010-01-16. (Archived by WebCite at Webcitation.org)
External links
OECD work on financial markets Observation of UK Finance Market
Wharton Finance Knowledge Project - aimed to offer free access to finance knowledge for students, teachers, and self-learners. Professor Aswath Damodaran (New York University Stern School of Business) - provides resources covering three areas in finance: corporate finance, valuation and investment management and syndicate finance. This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
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Translations:
Finance
Top
Dansk (Danish)
n. - finansiering, finans, finansvæsen
v. tr. - finansiere
idioms:
financial backer finansbagmand
high finance højfinans
Nederlands (Dutch)
financieren, verkopen op krediet, met geldzaken bezig zijn, financiën, financieel beheer
Français (French)
n. - finance
v. tr. - financer, commanditer
idioms:
financial backer bailleur de fonds, prêteur, commanditaire
high finance haute finance
Deutsch (German)
n. - Finanzen, Geldwesen, Geldmittel
v. - finanzieren
idioms:
financial backer Geldgeber
high finance Hochfinanz
Ελληνική (Greek)
n. - δημοσιονομία, (σύστημα που διέπει την) οικονομία, χρηματοδοτικές πηγές, (πληθ.) η οικονομική κατάσταση (κάποιου)
v. - χρηματοδοτώ
idioms:
financial backer χρηματοδότης
high finance (οικον.) χρηματοοικονομικές δραστηριότητες υψηλού επιπέδου
Italiano (Italian)
finanziare, finanze
Português (Portuguese)
n. - finanças (f pl)
v. - financiar
idioms:
high finance altas finanças
Русский (Russian)
финансировать, предоставлять кредит, финансы, доход, финансирование
idioms:
high finance финансовые операции, выражающиеся в больших денежных суммах
Español (Spanish)
n. - fondos, recursos, finanzas
v. tr. - financiar, finanzas
idioms:
financial backer comanditario, financiador, fiador
high finance altas finanzas
Svenska (Swedish)
n. - finans, finansväsen
v. - finansiera, göra finansoperationer, skaffa pengar
中文（简体）(Chinese (Simplified))
财政, 财务, 供给...经费, 负担经费
idioms:
financial backer 提供资金者
high finance 巨额融资, 巨额融资营业所
中文（繁體）(Chinese (Traditional))
n. - 財政, 財務
v. tr. - 供給...經費, 負擔經費
idioms:
financial backer 提供資金者
high finance 巨額融資, 巨額融資營業所
한국어 (Korean)
n. - 제정
v. tr. - 융자하다
日本語 (Japanese)
n. - 財政, 金融, 財政学, 財源, 資金調達
v. - 金を融通する, 融資する, 掛け売りする, 資金を調達する, 資金を供給する
العربيه (Arabic)
(الاسم) تمويل , علم دراسه الموارد الماليه (فعل) يمول
עברית (Hebrew)
n. - מימון, ממונות, פיננסים
v. tr. - מימן
If you are unable to view some languages clearly, click here. To select your translation preferences click here. Related topics:
cameralistic
Corporate Finance (finance term)
HHFA (abbreviation)
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