The economic performance of any country can be very well analyzed through the development of its

equity market, which plays a vital role in the economic development of any country.

According to Seeking Alpha(2008), the financial market size was estimated to US$828 trillion, which was
measured as eleven times larger than the size of whole economy of the world.

1 finances plural : money or other liquid resources of a government, business, group, or individual
The library closed due to a lack of finances.
2: the system that includes the circulation of money, the granting of credit, the making of investments,
and the provision of banking facilities
3: the science or study of the management of funds
An expert in finance predicts a global recession.
4: the obtaining of funds or capital : financing

Finance is the commercial or government activity of managing money,

debt, credit, and investment.

Finance is a field that is concerned with the allocation (investment) of assets and liabilities over ....
stock or common stock), bonds (for example mutual bonds or government bonds, or corporate
bonds), cash and alternative investments.

Finance is a field that is concerned with the allocation (investment) of assets and liabilities over
space and time, often under conditions of risk or uncertainty.

Finance can also be defined as the art of money management. Participants in the market aim to
price assets based on their risk level, fundamental value, and their expected rate of return.

Finance can be split into three sub-categories: public finance, corporate finance and personal
finance.[

Financial markets data often pose a number of challenges to financial analysts who endeavor to find an
appropriate model for a given time series.

What is Finance? Meaning Definition Features of Finance

.
What is Finance? Meaning

Before we begin, first let’s understand the origin of word “FINANCE.”

If we trace the origin of finance, there is evidence to prove that it is as old as human life on earth. The word finance
was originally a French word. In the 18th century, it was adapted by English speaking communities to mean “the
management of money.” Since then, it has found a permanent place in the English dictionary. Today, finance is not
merely a word else has emerged into an academic discipline of greater significance. Finance is now organized as a
branch of Economics.
Furthermore, the one word which can easily replace finance is “EXCHANGE." Finance is nothing but an exchange of
available resources. Finance is not restricted only to the exchange and/or management of money. A barter trading
system is also a type of finance. Thus, we can say, Finance is an art of managing various available resources like
money, assets, investments, securities, etc.
At present, we cannot imagine a world without Finance. In other words, Finance is the soul of our economic activities.
To perform any economic activity, we need certain resources, which are to be pooled in terms of money (i.e. in the form
of currency notes, other valuables, etc.). Finance is a prerequisite for obtaining physical resources, which are needed
to perform productive activities and carrying business operations such as sales, pay compensations, reserve for
contingencies (unascertained liabilities) and so on.
Hence, Finance has now become an organic function and inseparable part of our day-to-day lives. Today, it has become
a word which we often encounter on our daily basis.

Definition of Finance

Finance is defined in numerous ways by different groups of people. Though it is difficult to give a perfect definition of
Finance following selected statements will help you deduce its broad meaning.
1. In General sense,
"Finance is the management of money and other valuables, which can be easily converted into cash."

2. According to Experts,
"Finance is a simple task of providing the necessary funds (money) required by the business of entities like
companies, firms, individuals and others on the terms that are most favourable to achieve their economic objectives."

3. According to Entrepreneurs,
"Finance is concerned with cash. It is so, since, every business transaction involves cash directly or indirectly."

4. According to Academicians,
"Finance is the procurement (to get, obtain) of funds and effective (properly planned) utilisation of funds. It also deals
with profits that adequately compensate for the cost and risks borne by the business."

Features of Finance

The main characteristics or features of finance are depicted below.

 Article and Image Credits © Moon Rodriguez.

1. Investment Opportunities

In Finance, Investment can be explained as a utilisation of money for profit or returns.

Investment can be done by:-
1. Creating physical assets with the money (such as development of land, acquiring commercial assets, etc.),
2. Carrying on business activities (like manufacturing, trading, etc.), and
3. Acquiring financial securities (such as shares, bonds, units of mutual funds, etc.).
Investment opportunities are commitments of monetary resources at different times with an expectation of economic
returns in the future.

2. Profitable Opportunities

In Finance, Profitable opportunities are considered as an important aspiration (goal).

Profitable opportunities signify that the firm must utilize its available resources most efficiently under the conditions of
cut-throat competitive markets.
Profitable opportunities shall be a vision. It shall not result in short-term profits at the expense of long-term gains.
For example, business carried on with non-compliance of law, unethical ways of acquiring the business, etc., usually
may result in huge short-term profits but may also hinder the smooth possibility of long-term gains and survival of
business in the future.

3. Optimal Mix of Funds

 Finance is concerned with the best optimal mix of funds in order to obtain the desired and determined results
respectively.
Primarily, funds are of two types, namely,
1. Owned funds (Promoter Contribution, Equity shares, etc.), and
2. Borrowed funds (Bank Loan, Bank overdraft, Debentures, etc).
The composition of funds should be such that it shall not result in loss of profits to the Entrepreneurs (Promoters) and
must recover the cost of business units effectively and efficiently.

4. System of Internal Controls

Finance is concerned with internal controls maintained in the organisation or workplace.

Internal controls are set of rules and regulations framed at the inception stage of the organisation, and they are altered
as per the requirement of its business.
However, these rules and regulations are monitored at various intervals to accomplish the same which have been
consistently followed.

5. Future Decision Making

Finance is concerned with the future decision of the organisation.

A "Good Finance” is an indicator of growth and good returns. This is possible only with the good analytical decision of
the organisation. However, the decision shall be framed by giving more emphasis on the present and future perspective
(economic conditions) respectively.

Conclusion on Finance

Finance to be more precise is concerned with the management of,

1. Owned funds (promoter contribution),
2. Raised funds (equity share, preference share, etc.), and
3. Borrowed funds (loans, debentures, overdrafts, etc.).
At the same time, Finance also encompasses wider perspective of managing the business generated assets and other
valuables more efficiently

Finance is a field that is concerned with the allocation (investment) of assets and liabilities over
space and time, often under conditions of risk or uncertainty.

Finance can also be defined as the art of money management. Participants in the market aim to
price assets based on their risk level, fundamental value, and their expected rate of return.

Finance can be split into three sub-categories: public finance, corporate finance and personal
finance.[
Areas of finance[edit]
Personal finance[edit]
Main article: Personal finance

Matters in personal finance revolve around:

 Protection against unforeseen personal events, as well as events in the wider economies
 Transference of family wealth across generations (bequests and inheritance)
 Effects of tax policies (tax subsidies or penalties) management of personal finances
 Effects of credit on individual financial standing
 Development of a savings plan or financing for large purchases (auto, education, home)
 Planning a secure financial future in an environment of economic instability
 Pursuing a checking and/or a savings account
 Preparation for retirement/ long term expenses

Warren Buffett CEO & chairman of Berkshire Hathaway, American investor, business magnate, and philanthropist.
He is considered by some to be one of the most successful investors in the world.

Personal finance 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.

Corporate finance

Jack Welch, an American business executive, author, and chemical engineer. He was chairman and CEO of General
Electric between 1981 and 2001. During his tenure at GE, the company's value rose 4,000%.

Corporate finance deals with the sources of funding and the capital structure of corporations, the
actions that managers take to increase the value of the firm to the shareholders, and the tools and
analysis used to allocate financial resources. Although it is in principle different from managerial
finance which studies the financial management of all firms, rather than corporations alone, the main
concepts in the study of corporate finance are applicable to the financial problems of all kinds of
firms. Corporate finance generally involves balancing risk and profitability, while attempting to
maximize an entity's assets, net incoming cash flow and the value of its stock, and generically entails
three primary areas of capital resource allocation.

Public finance[edit]
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. school districts) or
agencies. It usually encompasses a long-term strategic perspective regarding investment decisions
that affect public entities.[6] These long-term strategic periods usually encompass five or more years.[7]
Public finance is primarily 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

Central banks, such as the Federal Reserve System banks in the United States and Bank of
England in the United Kingdom, are strong players in public finance, acting as lenders of last resort
as well as strong influences on monetary and credit conditions in the economy.[8]

Capital[edit]
Main article: Financial capital

Capital, in the financial sense, is the money that gives the business the power to buy goods to be
used in the production of other goods or the offering of a service. (Capital has two types of sources,
equity and debt).

The deployment of capital is decided by the budget. This may include the objective of business,
targets set, and results in financial terms, e.g., the target set for sale, resulting cost, growth, required
investment to achieve the planned sales, and financing source for the investment.

A budget may be long term or short term. Long term budgets have a time horizon of 5–10 years
giving a vision to the company; short term is an annual budget which is drawn to control and operate
in that particular year.

Budgets will include proposed fixed asset requirements and how these expenditures will be
financed. Capital budgets are often adjusted annually (done every year) and should be part of a
longer-term Capital Improvements Plan.

A cash budget is also required. The working capital requirements of a business are monitored at all
times to ensure that there are sufficient funds available to meet short-term expenses.

Financial theory[edit]
Financial economics[edit]
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 goods and services. Financial economics
concentrates on influences of real economic variables on financial ones, in contrast to pure finance.
It centres on managing risk in the context of the financial markets, and the resultant economic and
financial models.

It essentially explores how rational investors would apply risk and return to the problem of an
investment policy. 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.

Although they are closely related, the disciplines of economics and finance are distinct. 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.

Financial mathematics[edit]
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 that is involved in financial mathematics. 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 modelling 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[edit]
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 therefore prove them, and attempt
to discover new principles on which such theory can be extended and be applied to future financial
decisions. Research may proceed by conducting trading simulations or by establishing and studying
the behavior, and the way that these people act or react, of people in artificial competitive market-
like settings.

Behavioral finance[edit]
Main article: Behavioral economics

Behavioral finance studies how the psychology of investors or managers affects financial decisions
and markets when making a decision that can impact either negatively or positively on one of their
areas. Behavioral finance has grown over the last few decades to become central and very
important to finance.[9]

Behavioral finance includes such topics as:

1. Empirical studies that demonstrate significant deviations from classical theories.

2. Models of how psychology affects and impacts trading and prices
3. Forecasting based on these methods.
4. Studies of experimental asset markets and use of models to forecast experiments.