Thursday, July 18, 2013, PM | Leave Comment
Finance has always been an integral part of our lives. Finance is basically the study of management of funds and allocation of liabilities and assets. The changing value of money with time plays an important role in finance. The value of a unit of currency today, is greater than its value tomorrow.
According to finance, the assets are priced according to their level of risk and the return rate expected.
Finance can be classified into three major categories. Let us look at these categories of finance:
Personal finance deals with the monetary problems arising in the personal lives of people. It deals with problems like protection against unpredictable events, transfer of assets generation after generation, in families; effect of tax policy on the financial management of a person, effect of credit on the financial standing of a person, and planning of a secure financial status for future, in times of economic uncertainty.
Personal finance involves expenditure in payment for education, purchase of insurance, purchase of cars and real estate, buying health and property insurance, and investment and savings for retirement.
The six major areas of personal finance planning are financial position, tax planning, and adequate protection against uncertainties, planning for retirement, goals of investment, and planning for estate.
Corporate finance deals with capital investment and funding for corporations. In this category of finance, the managers of a corporation take suitable measures to heighten the value of the organization or firm to its shareholders. It also includes allocation of financial resources through tools and proper analysis.
The concepts of corporate finance can be applied to all types of firms. It involves the balancing of risk and gain, while trying to maximize the wealth of the firm. For budgeting the capital, the managers need to decide what kind of projects to choose. The sources of this capital may be the shareholders, creditors, bonds, or through equity.
The scope of corporate management also includes valuation of business, investment of stock or its management. An investment is the attainment of an asset, with the hope that it will over time contribute to the increment of its value.
The finance that is related to states, provinces, municipalities, counties and sovereign states is included in Public finance.
Public finance involves:
Identifying the expenditure required for an entity of public sector.
Identifying the sources of revenue of that entity.
The process of budgeting.
The municipal bonds for projects of public sectors.
The major banks of a nation are the most significant lenders of public finance. They strongly influence the credit and monetary conditions of the nation’s economy.
A sound knowledge of finance is required for the smooth running of any economy. Even the owners of small scale businesses need to have an in-depth knowledge of finance. This helps them to plan their capital, investments, and other expenditures properly.
Thus, finance is a vast concept and plays significant role in the economic development of any entity. Finance is grouped in to three categories, which deal with the management of funds at the personal, corporate and public levels.
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