Finance is a general branch of business economics concerned primarily with the management and origination of funds, credit, lending and investment. Other typical areas of study in finance are asset-pricing, portfolio theory, personal financial planning, and financial markets. In broad terms, finance deals with how money is made to market and how it is spent as output in the business economy. It also takes into account the effects of changes in the supply of money on the value of goods and services, which then influence the prices of goods and services in the market. This theory may be used to explain the role played by banks in the economy, with particular reference to loans, trading, balance of payments and other aspects of the functioning of the economy.
The term finance is also used, sometimes together with other financial terms, to refer to the entire field of activities that finance in modern society. This can include individual investors, corporate venture capital, public financial organizations such as local governments, central banks and other financial institutions. The scope of finance is constantly increasing due to technological advancements, globalization and other factors. While this wide scope allows for relatively risk free financing, this also means that the opportunities for error utilization are great, making it important for both the investor and the financial institution to have a strong level of risk management and protection.
Investment refers to the use of financial resources – capital assets – to increase production and employment. The basic function of all forms of finance is to provide adequate funding for the production of marketable securities and working capital. Most firms exist to generate profits by utilizing their capital resources efficiently. There are several different types of capital resources that are used by firms in the modern economy; some of the most commonly used are firm funds, corporate bonds, venture capital, fixed income funds and other marketable securities.