What is finance?
Whatever the organization, be it professional or associative, its finance department is of major importance in its development. Its role is to manage, balance and grow a capital.
Finance analyzes how a third party (an individual, a company or a government) makes an economic decision, in a specific context. It includes activities related to banking, capital markets, investments and debt.
In short, it studies the obtaining of financing, the mechanism of acquiring money, as well as the savings and benefits that result from it. This process helps to optimize resources and expenses, but above all to generate added value. The profits tend to increase the company’s wealth, which will be beneficial to its expansion and sustainability.
The word finance can also include the tools needed to obtain capital, but also includes economic agents who invest to generate profit. Finance allows us, with the help of various processes, to project and design a project, while evaluating the risks, according to a precise financial plan. If its primary goal is to increase wealth, the benefits are multiple, such as the improvement of its standard of living, investment and development, but also to amortize the expenses related to the various charges of the company.
Finance positions are numerous and often specialized. INSEEC offers a wide range of training courses, which, depending on the level of education, allow you to aim for the position of your choice.
What are the different sectors of finance?
Finance is a microcosm from which several sectors of activity emerge. As complex as they may seem, these different areas are perfectly identifiable:
This sector takes into account the management of private and corporate securities, their pension funds, stock market investments and potential securities issues. The people responsible for working there are responsible for selecting assets, evaluating performance and managing their clients’ portfolios.
The international finance sector uses financial analysts. They are responsible for managing foreign investments, imports and exports, and foreign financing of a state.
Financial management of entities
This is one of the broadest areas of finance and is based on the major decisions made within a large company. Its purpose is to analyze the financing, the allocated budgets, the relations with the investors and especially the acquisitions of assets.
Reserved mainly for financial institutions, including banks, this field is involved in granting credit to companies and individuals, so that they can make investments. It is a sector that creates a lot of jobs and is the most represented in the financial world.
The fields of finance: what is market finance?
The main players in market finance
Market finance focuses on the study of financial markets. Targeting both wholesale and retail markets, its main players are asset management companies, insurers, central banks and investment banks. The same people who determine and analyze how investors manage their stock and bond portfolios, and who determine asset prices. This area covers everything related to financial operations and transactions related to investment and financing securities.
The mechanics of market finance
At the heart of market finance, capital is directed through a system of stock market mechanisms, promoting the valuation of investment opportunities issued by issuers of securities. Prices are thus a precise indicator of behavior and play a key role in ensuring the legitimacy of economic choices. Financiers call these prices “fundamental value” as the true value of assets.
Market finance has a theoretical and empirical approach. For the most part, the processes employed are based on a fundamental assumption of investment rationality. That is to say that investors must supposedly make advantageous choices with the amount of information at their disposal, despite a sometimes unstable context. This field focuses on the study of the efficiency of financial markets and the valuation of assets. Another important issue in this area is the diversity of financial products. By using specific assets, such as derivatives, agents try to obtain a better spread of risks, by evaluating and measuring them according to adapted investment strategies.
The fields of finance: what is real estate finance?
In recent years, real estate investment has grown exponentially, including the buyout of many properties by insurance companies that they had abandoned in the 2000s. A real shield against inflation, thanks to the income they generate and their resale value, they were quickly joined by other players, such as real estate investment funds, which have generated remarkable performances in recent years in France and Europe.
Thus, real estate investment has become a very interesting alternative investment that is now at the heart of financial strategies. The valorization of the buildings takes part in making the investments bear fruit in order to answer the requests of returns and of plue value. It is a field that requires a good culture of the real estate product as well as excellent asset management.
Real estate finance is gradually being added as a discipline to be studied in the major schools, but remains a niche within the sector.
The fields of finance: what is banking finance?
Within the financial field, bank finance refers to the actions allocated by banks to lend a sum of money so that a third party (a company or an individual) can carry out a project. This financing is determined as a loan and means that it must be repaid with commitments from both sides, the borrower as well as the debtor.
As an example, the creditor who is the basis of the financing commits to transfer a negotiated amount of money, after conducting a risk analysis to determine if he is able to lend the money, and to determine the terms. Once the action has been completed, the debtor undertakes to repay the sum, together with interest on loans common to this type of procedure.
Thus, the objective of banking finance is to offer financial services, such as loans, savings or deposits of money. This sector is legally a financial institution controlled by a strict monetary code.
To get a better idea of these differences, it is interesting to consult examples of job descriptions and possible openings.
What is the difference between finance and economics?
Analysis and definition
Etymologically, the term economy refers to the use of resources in order to meet the needs of an individual by developing a system of organization of activities in connection with buyers and sellers. From this definition, the concept of economic system emerges.
Finance is the study of the investments that an organization of individuals must make in order to achieve the best returns, over a given period of time. It concentrates the various monetary flows, price variations, interest rate changes, or the various variations in the heart of the markets, etc. In itself, it is a science that studies the way money is distributed according to various uses, with the aim of making its return grow.
Two distinct sciences
Thus, an economic situation is calculated according to the accumulation of the various elements constituting a patrimony while the financial situation is evaluated according to the capacity of refunding as well as the solvency of a third party. The two fields are closely related, but there are notable differences that differentiate them. The key differences between economics and finance are outlined below.
The economy takes into account what is related to production, exchange of goods and services, transfer of wealth and consumption. Finance focuses on the optimization of an organization’s funds, with the aim of making an investment profitable.
Economics finds its difference in the ability to optimize limited resources, while finance seeks to optimize and develop wealth. Another key fact is that economics seeks to analyze and explain the reasons for a surplus or deficit, which can impact society as a whole, while finance explains the source of interest rate changes as well as price fluctuations of consumer goods.
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