INTRODUCTION
WHAT WILL BE COVERED
Definition and meaning of Finance
History of finance
Importance/objective of Finance
Categories of Finance
Finance VS Economics
Finance VS Accounting
Functions of Finance Manager
Career parts in Finance
Examples of Finance Terms
DEFINITION AND MEANING OF
FINANCE
• Finance is defined as the management of money
Finance activities
• Lending & borrowing, investment, creating money, budgeting, saving,
forecasting future income, valuation etc.
• Finance can be broadly divided into three categories: public finance,
corporate finance, and personal finance.
• Subcategories of finance include social finance and behavioral finance
HISTORY OF FINANCE
• The financial transactions of the early Sumerians were formalized in
the Babylonian Code of Hammurabi around 1800 BCE. This set of
rules regulated ownership or rental of land, employment of
agricultural labor, and credit.
• Particular realms of finance such as banking, lending, and investing
have been around in some form since the dawn of civilization.
• Finance arose as a study of theory and practice distinct from the field
of economics in the 1940s.
• It began with the works of Harry Markowitz, William F. Sharpe, Fischer
Black, and Myron Scholes.
IMPORTANCE/OBJECTIVE OF
FINANCE
• Finance involves borrowing and lending, investing, raising capital, and
selling and trading securities. The purpose of these pursuits is to allow
companies and individuals to fund certain activities or projects to be
repaid in the future based on income streams generated from those
activities.
• People wouldn't be able to afford to buy homes entirely in cash
without finance and companies wouldn't be able to grow and expand.
Finance allows for the more efficient allocation of capital resources.
CATEGORIES OF FINANCE
Finance is typically broken down into three broad categories:
• public finance: tax systems, government expenditures, budget
procedures, stabilization policies and instruments, debt issues, and other
government concerns
• corporate finance: managing assets, liabilities, revenues, and debts for
businesses.
• personal finance: all financial decisions and activities of an individual or
household, including budgeting, insurance, mortgage planning, savings, and all
financial decisions and activities of an individual or household, including
budgeting, insurance, mortgage planning, savings, and retirement planning
Other categories include: Social finance: investments made in social enterprises
including charitable organizations and some cooperatives.
FINANCE vs ECONOMICS
• The focus of economics and especially macroeconomics tends to be a
bigger picture in nature such as how a country, region, or market is
performing. Economics can also focus on public policy. The focus of
finance is more individual-, company-, or industry-specific.
• Economics and finance are interrelated, informing and influencing
each other. Investors care about economic data because they also
influence the markets to a great degree.
FINANCE vs ACCOUNTING
• Accounting is one aspect of finance that tracks day-to-day cash flows,
expenses, and income. Accounting tasks include bookkeeping, tax
preparation, and auditing.
FUNCTIONS OF A FINANCE
MANAGER
• Financial planning: Preparing the financial plan, which projects
revenues, expenditures, and financing needs over a given period.
• Investment (spending money): Investing the firm’s funds in projects
and securities that provide high returns in relation to their risks.
• Financing (raising money): Obtaining funding for the firm’s operations
and investments and seeking the best balance between debt
(borrowed funds) and equity (funds raised through the sale of
ownership in the business).
• Dividend Decision: Deciding how the profit of the firm will be utilized.
CAREER PATHS IN FINANCE
• Banker: A commercial banker works with businesses to provide banking
services such as accounts and loans. An investment banker focuses on
companies looking to raise capital or conduct a sale or merger.
• Capital manager: A capital management professional helps a company
allocate its capital resources between investment options.
• Lender: An individual who works in lending, such as a loan officer, manages
the issuance of loans. A mortgage lender would work contracts to secure a
real estate loan.
• Market analyst: Market analysts evaluate trends and make forecasts that
account for changing market conditions. They prepare recommendations that
can guide a company’s financial decisions.
EXAMPLES OF KEY FINANCE TERMS
• Assets
• Securities
• Equity/Shares
• Debt/Bond/Debenture
• Compounding
• Discounting
• Future value & Present value
• Liquidity
• Interest rate
