Finance is a broad term encompassing many things about the development, management and distribution of financial assets and securities. These assets and securities can be in the form of cash, negotiable instruments (such as shares of stock), property or securities. Various parts of the financial system are involved in the process of financing. Investors and savers pool their money together in the hope that it will make a return and become profitable. When put to good use, investors and savers have cash available to them that can either earn dividends or interest.
The scope of corporate finance is vast and may include bank financing, mortgage banking, commercial real estate loans and the financing of mergers and acquisitions. Banks also make large sums of their money by buying large quantities of corporate bonds, stocks and other financial securities. Corporate finance therefore encompasses a wide range of activities that influence the value of a company’s stock and assets. There are many aspects of the financial system that can affect a company’s capital structure and therefore affect its ability to raise and lend cash. One of the most important areas of corporate finance is interest-bearing debt.
Commercial banks are a key part of the financing process for many businesses. Banks make money by lending loans to businesses in return for interests on the loans. The size of a bank, its name recognition and credit history, all factors help to determine how much it can lend to a client. The two most common types of commercial bank borrowing are home loans and business loans. Home loans refer to home mortgages and personal loans, while business loans are taken from banks to buy real estate and equipment for companies.
Another important area of the financial services field is international finance. International finance deals with the movement of funds around the world and the resulting variations in interest rates and payment terms. This includes the movements of capital between various countries. Other types of international finance include; trading and currency exchanges, insurance, central bank lending, private financial markets, and the complex interactions of the different national banks. Financial management refers to the process of coordinating and managing financial transactions and investments.
In the retail finance field, loans are given to customers based on their financial capabilities. This includes determining an individual’s credit worthiness and providing proof of income and savings. These loans are used to purchase goods and services that consumers need. Other types of retail finance products are business lines of credit and consumer credit. The investment strategies used by banks in the retail sector include making investments in businesses that will generate cash flow and profits, and buying businesses that produce goods and services that will sell.
One of the larger components of finance is asset management. This area of finance deals with the use of capital markets to acquire, manage, and convert existing assets into cash. Capital markets include; stock markets, foreign exchanges, interest rate exchanges, and commodity markets. While finance is extremely important to any organization, it is especially vital when one’s company is looking to expand their scope of activities and take on larger amounts of global competition. Learning about the three main components of finance is key to understanding the financial needs of businesses everywhere.