DEFINE FINANCE

Definition of Finance

Finance is much more than just money. Finance refers to the asset allocation and management of
monetary resources, whereas money is a legal tender utilized for transactional settlements.

Banking, debt, credit, capital markets, money, and investments are all covered under the general
term "finance”. Activities such as investing, borrowing, lending, budgeting, saving, and forecasting are
all part of financial systems, and finance is responsible for overseeing, creating, and studying them.

The History of Finance

The writings of Markowitz, Tobin, Sharpe, Treynor, Black, and Scholes, to cite a few, helped to establish
finance as a separate field of theory and practice from economics in the 1940s and 1950s . Many
aspects of finance have existed in some form or another since the beginning of civilization, including
banking, lending, and investing, as well as money itself.

Banking appears to have begun in the Babylonian/Sumerian Empire around 3000 BC, and the early
Sumerian financial activities were institutionalized in the Babylonian Code of Hammurabi (circa 1800
BC). As early as 3000 BC, banks and interest-bearing loans existed. As early as 1000 BC, coins were
being circulated.

Three Categories of Finance:

1. Public Finance - concerns the country's expenses and revenues. Only the government's
finances are taken into account. Tax systems, government spending, budget procedures,
stabilization policies and tools, debt challenges, and other government concerns are all covered
by public finance.
2. Corporate Finance - the management of a company's assets, liabilities, revenues, and debts. It
encompasses all financial aspects of running a business. It is a branch that supervises a
corporation's economic operations. The basic goal of corporate finance is to maximize
profitability through short- and long-term financial planning, as well as the implementation of
various strategies.
3. Personal finance - the application of financial principles to a family's or individual's financial
decisions. Budgeting, insurance, mortgage planning, savings, and retirement planning are all
part of it. It is the management of a person's financial resources in five areas: revenue, savings,
investments, spending, and asset management. The idea is to make smart investing decisions
and develop a safety net that allows an individual to live comfortably without being weighed
down by debt.
Two Subcategories of Finance:

1. Social finance typically refers to investments made in social enterprises including charitable
organizations and some cooperatives.
2. Behavioral finance is a sub-field of behavioral economics that provides psychology-based
theories to explain financial anomalies such rapid price increases and decreases. The goal is to
discover and comprehend why people make certain financial decisions.