Finance is a broad term for things regarding the study, generation, and management of financial assets and liabilities. Finance can be defined as the application of tools to generate information about monetary instruments such as interest rates, cost of goods etc., to assess their value in terms of future cash inflows and disbursements. Finance is the science of funds management. The objective of financial accounting is the forecasting, measuring, reporting, and trading of monetary funds. It involves the collection of data and the analysis thereof for the purpose of providing information about the monetary value of various financial instruments. It also provides information about the interrelations of various financial variables such as credit, equity, liability, market sector, company sector, government sector, and financial market.
A firm that provides finance has three main products: Financial Accounting and Reporting, Management and Financial Services, and Public Business Finance. Financial accounting deals with the recording of financial transactions, and preparing the statements of accounts; it also involves the preparation of the budget and financial strategy. Management deals with the strategies and policies for the organization relating to finance. Financial services is concerned with the operations of banks and financial institutions such as banks and other money lending institutions, stock markets, brokerage firms, insurance companies, and mutual funds. Public business finance is all financial products that are not private, but available to the public.
The three main components of public finance include government finance, central and local government finance, and corporate finance. Government finance is required for the smooth operation of our government at both the national and local levels. Local government finance includes city management, which includes finance for infrastructure, parks, sanitation, fire, and education. Central and local government finance includes: defense | domestic | federal | includes | ;} Federal government can issue orders for manufacturing, trading, or procurement in foreign countries. They also borrow money from time to time. They use the money to purchase securities in the form of government bonds, commercial paper, and personal securities. They use the funds for various programs such as research and development, public works, defense, and emergency services.
Behavioral finance refers to the decision making process used to take the decisions in a situation. Behavioral finance deals with a set of financial decisions regarding investments, saving, spending, and borrowing. It is used to forecast the behavior of people towards investments, saving, and spending. All the three components of public finance are interrelated in a complex manner. It is because of this intricate interplay of all these factors that any successful management of finance is largely dependent on effective utilization of these three aspects.
There are various tools used for the analysis of finance. The three most common are the use of tables, actuaries, and statistical data analysis. These financial activities are generally carried out by business firms and large banks. Finance is therefore a major component of business activities and affects corporate finance, investing, business cycle, economic growth, and monetary policy.