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What is Finance? Definition, Overview, Types of Finance

Finance is when we grant or give some funds and manage the funds for some individual, business, and government. Moreover, It includes distributing the money and managing the finances for someone or lending the funds. It is a general term, which is defining two activities all together at the same time.

Firstly, it’s the study of managing money. And secondly, it’s the actual process of the funds required by some individual or business to get their work or business grow.

Or we can say that it is a field dealing with capital funds and credit funds invested in the business. It can be defined as planning, raising, managing, and controlling all the business’s money.

In simple words, finance is the management of money, including investing, renting, saving, lending, budgeting, etc.

It is not just about shifting money. But it is more about the management or control of money, i.e., how well are we managing the funds because our main motive is to develop the business with a little expense possible.

In business, a finance team’s work ensures that the company has sufficient resources to work in the best way possible and maximize productivity.

And also to check that the fortune which company has invested is used for the right purpose. And the company’s expenses and wealth are well managed.

What are the Different types of Finance

There are mainly three types: –

  • Corporate (Business)
  • Personal
  • Public (Government)

Corporate Finance (Business) :

As the name suggests, Corporate Finance is the type of finance used from a business perspective. The management of the funding of a company and its sources and uses of the capital. In contrast, the management of the profit the company has made and the loss statement.

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In simple words, we can say that the financial activities are related to running a company with maximum growth possible because the main motive will always be the company’s growth.

The corporate finance professionals in the business have the responsibility of managing the company’s finances. Also, It includes accountants, financial analysts, and the managers and executives such as the chief financial officers.

Funding for company expenses means raising the financial position of the company. Corporate finance is about the capital structure and deals with the sources of funds and their transmission. Transmission directly related to the fund acquisition for resources and raising the company’s financial position. Besides, maintaining the balance between opportunities and risks is one of the top responsibilities of corporate finance.

The corporate finance professionals will always be essentially bothered with escalating the shareholder profit by the long term and short term financial planning

Examples: – Debt, Equity, Capital Structure, Return on Investment (ROI), Assets, Liabilities, Income Statement, Cash Flow, Cost of Capital, Balance Sheet, Revenues, Expenses, Profit.

Public or Government Finance

As the name ‘public finance‘ suggests, this type of finance helps us deal with the public’s financial issues. It is the study of the revenue of the state and the expenses of the state. Moreover, it only deals with the government’s finances.

In addition, The public finance field consists of studying the arrangement of the funds and their allocation between the various parts of the activities of the state and the state’s duties.

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From the government’s viewpoint, it includes managing a country’s national budget, the central bank, the repository department, and other levels of government.

It focuses on collecting tax revenue from the public and using that money on national duties and other programs such as making roads and hospitals, increasing social security, and more.

Examples: –  Infrastructure spending (roads, hospitals, etc.), Income tax, Sales tax, Property tax, Inflation, Social security and insurance, Gross national product (GNP), Supply of money, International trading, Employment, National debt, National budget.

Personal Finance

From a personal point of view, It is the management of someone’s income, which he/she is earning, or of someone’s expenses, their investments they have made in the market, and obligations.

Moreover, individuals often work with a personal bank service, adviser for financing according to their needs, mortgage broker, and other professionals to manage their financial situation.

Or we can say that personal finance can be used to manage our expenses. Therefore, we usually work with personal bankers and investments to make our financial base strong, etc.

Here are some of the examples of the types of items people deal with on a personal level.

Examples: – Credit cards, Bank accounts, Lines of credit, Employment income, Taxes, Personal spending and expenses, Savings, Investments (bonds, real estate, etc.), and Mortgages.

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What are the other types of financing?

There are several other financing types different from the three main types of financing, which are discussed above. And that can be layered over personal, business, and government Finance.

Other types include

Behavioral

It depends upon the human’s decisions, whether it may be social or psychical but when this judgment affects the investments. The impact individuals have on investment decision making includes biases, logic, and errors in cognition, fear, and greed.

Social

A philosophy of making and managing investments that have a social impact and social benefit on society (in addition to an economic benefit).

Non-profit

Non- Profits do not have stockholders, and they do not require to create any earnings or economic benefit. But they still require the same varieties of financial management as other for-profit companies.

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What are the financial services?

Financial services are different from financial goods, like financial service provided by any payment provider while it transfers and accepts the funds between recipients and payers. It involves account settlements through debit and credit cards, checks, or any electronic funds transfer.
The finance service sector plays an important role in the section of the economy. It is used to drive the nation’s economy with the help of the free flow of assets. Financial services involve various financial firms, such as investment houses, insurance companies, accounting services, banks, finance companies, lenders, and real estate brokers.
When the financial sector and the nation’s economy are strong enough, it raises purchasing power and consumer confidence. If the nation’s financial services segment fails, then the nation’s economy can drag down, resulting in a recession.

What are the instruments used in finance?

A company or individual requires the financial instrument to avail of finance services. The financial instruments include economic activities, and it is a contract between two different parties. The finance instruments use for borrowing and lending purposes, and investment purposes. The instruments can be classified as Derivative instruments and Cash instruments.

What do you mean by financial activities?

The financial activities are related to the government, individuals, and businesses’ transactions and initiatives to achieve specific economic aims. These are the activities that include the outflow and inflow of money. An example of it is selling and buying assets (or product), initiating loans, issuing stocks, and managing accounts.
Whenever a company makes debt payments by selling the shares, both these activities are termed financial activities. Governments and individuals are also included in financial activities, like levying taxes and taking loans, that are further particular monetary goals.

Problems You Can Face During Finance Assignment :

  • English Proficiency
  • Referencing
  • Subject Knowledge
  • Formatting The Assignment
  • Plagiarism

Frequently Asked Questions

Why do we need to study finance?

It will just not help you in careers in the financial sector but also be helpful in your day to day life. Furthermore, finance revolves around planning and analysis; studying this subject makes you more financially literate and enables you to make better financial decisions.

Is finance and accounting the same?

While there are numerous similarities between accounting and finance, yet they are two particular different disciplines. Put another way, accounting is the organization and the management of financial data, while finance is cash management.

What are the basic principles of finance?


1. Risk and Return
2. Time Value of Money
3. Profitability and liquidity
4. Cash Flow Principle
5. The Hedging Principle of Finance
6. Principles of diversity

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