What is finance: definition, types, functions and purpose

Finance is a term in the business world that you are probably already familiar with. Many people assume that finance has the same meaning as finance. So what is finance? Finance, in its broadest sense, is a field of economics that focuses on finance. The word finance itself comes from English, namely financial. When interpreted, finance is finance. In Big Indonesian Dictionary (KBBI), finance means something that deals with finance. However, upon closer inspection, the discussion of finance is not just about financial conditions, which exist on a large scale. Quoted from Investopedia, Finance is a term for things related to the management, creation and study of money and investments.

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What is Finance?


Finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. There are three main types of finance: (1) private, (2) corporate, and (3) public/government. This guide will unpack the question: What is finance?

Video explanation of finances


Watch this short video to quickly understand the key concepts covered in this guide. It explains the definition of finance, provides examples of finance, and covers some of the common finance topics.

Examples


The easiest way to define finance is to give examples of the activities it includes. There are many different career paths and jobs that perform a wide range of financial activities. Below is a list of the most common examples:

    Invest personal money in stocks, bonds, or guaranteed investment certificates (GICs).
    Borrowing from institutional investors by issuing bonds on behalf of a public company
    Borrowing money from people by providing them with a mortgage with which to buy a home
    Using Excel spreadsheets to create a budget and financial model for a business
    Save personal money in a high-interest savings account
    Development of a forecast for government spending and revenue collection
    Financial people at work

    Financial topics


    There are a variety of topics that concern people in the financial industry. Below is a list of some of the most common topics you should expect in the industry.

    Interest rates and spreads


    Return (coupon payments, dividends)
    Annual financial statements (balance sheet, income statement, cash flow statement)
    Cash flow (free cash flow, other types of cash flow)
    Profit (net income)
    Cost of Capital (WACC)
    Returns (IRR, ROI, ROA)
    Dividends and return of capital
    Shareholders
    Value creation
    Risk and return
    Behavioral Finance

    Financial careers


    A definition of finance would not be complete without examining the career opportunities associated with the industry. Below are some of the most popular career paths:

    Advertising technology
    Personal Banking (or Private Banking)
    Investment banking
    Asset management
    Corporate financing
    Mortgages/loans
    accounting
    Financial planning
    Treasury
    Test
    Stock research
    Insurance
    CFI Finance Career Map

    Additional financial resources


    To further develop and prepare for a career in this field, these additional CFI materials will be helpful:

    Free course on the basics of corporate finance
    Types of financial models
    Interactive career map
    Compensation and Salary Policies
    The Trifecta® Analyst’s Guide
    More questions and answers

    CFI’s mission is to help everyone become a world-class financial analyst and has a wide range of resources to support you on your journey. To become a great financial analyst, below are some additional questions and answers you can explore further:

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