What are the different sectors of finance?

Contents

Definition

What is finance?

Whatever the organisation, be it a business or an association, its finance department plays a major role in its development. Its role is to manage, balance and grow capital.

Finance analyses the way in which a third party (an individual, a company or a government) makes an economic decision in a specific context. It encompasses activities related to banking, capital markets, investments and debt.

In short, it looks at the process of obtaining finance, the mechanism for acquiring money, as well as savings and the resulting benefits. This process helps to optimise resources and expenditure, but above all to generate added value. The profits tend to increase the company’s wealth, which will be beneficial to its expansion and long-term survival.

The word finance can also encompass the tools needed to obtain capital, but it also includes economic agents who invest in order to generate profit. Using a variety of processes, finance enables us to plan and design a project, while assessing the risks, according to a precise financial plan. While its primary aim is to increase wealth, there are many spin-offs, including improved living standards, investment and development, as well as the amortisation of expenses linked to the various costs of society.

Finance jobs are numerous and often specialised. INSEEC offers a wide range of courses, so that, depending on your level of education, you can aim for the job of your choice.

Sectors

What are the different sectors of finance?

Finance is a microcosm from which several sectors of activity emerge. However complex they may seem, these different areas are perfectly identifiable:

Investment

This sector covers the management of private and corporate securities, pension funds, stock market investments and potential securities issues. The people who work in this sector are responsible for selecting assets, evaluating performance and managing their clients’ portfolios.

International finance

The international finance sector relies on financial analysts. Their role is to manage a country’s foreign investments, imports and exports, and foreign financing.

Context

Financial management of entities

This is one of the broadest areas of finance and is based on the major decisions taken within a large company. Its purpose is to analyse financing, budget allocations, investor relations and, above all, asset acquisitions.

Banking finance

Mainly reserved for financial institutions, including banks, this sector is involved in granting credit to companies and individuals for investment purposes. It is a sector that creates many jobs and is the most represented in the world of finance.

Markets

Areas 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. These are the very people who determine and analyse how investors manage their equity and bond portfolios, and who determine asset prices. This field covers everything to do with financial operations and transactions linked to investment and financing securities.

The mechanics of market finance

At the heart of market finance, capital is channelled through a system of stock market mechanisms, promoting the valuation of investment opportunities issued by securities issuers. Prices thus represent a precise indicator of behaviour and play a key role in ensuring the legitimacy of economic choices. Financiers refer to these prices as “fundamental value”, as the true value of assets.

Market finance is both theoretical and empirical. For the most part, the procedures employed are based on a fundamental assumption of investment rationality. In other words, investors are supposed to make advantageous choices with the amount of information available to them, despite a sometimes unstable environment. This field makes a point of taking into account the study of the degree of efficiency of financial markets and the valuation of assets. Another important subject in this field is the diversity of financial products. By using specific assets, such as derivatives, agents are trying to achieve a better spread of risk, by evaluating and measuring them according to appropriate investment strategies.

Real estate

Areas of finance: what is real estate finance?

In recent years, property investment has grown exponentially, in particular through insurance companies buying up a large number of properties 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 property investment funds, which have generated remarkable performances in recent years in France and Europe.

As a result, property investment has become a highly attractive alternative investment that is now at the heart of financial strategies. Adding value to buildings helps to grow investments in order to meet the demand for yields and added value. It’s a field that requires a good understanding of real estate and excellent asset management.

Real estate finance is gradually being added as a subject to be studied in the grandes écoles, but it remains a niche within the sector.

Bank

Areas of finance: what is banking finance?

Within the financial sector, bank finance refers to the actions taken 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 on both sides, the borrower and the debtor.

By way of example, the creditor behind the financing undertakes to transfer a negotiated sum, after carrying out a risk analysis to determine whether it is in a position to lend the money, and to set the terms and conditions. Once the action has been carried out, the debtor undertakes to repay the sum, together with interest on the loans common to this type of process.

The aim of banking finance is to offer financial services such as loans, savings and deposits. This sector is legally a financial institution controlled by a strict monetary code.

To get a clearer idea of these differences, it is worth looking at examples of job descriptions and possible career opportunities.

Terms

What is the difference between finance and economics?

Analysis and definition

Etymologically, the term economy refers to the use of resources to meet an individual’s needs by developing a system for organising activities in relation to buyers and sellers. Finance is the study of the investments that an organisation of individuals must make in order to achieve the best returns over a given period of time. Finance is the study of the investments that an organisation of individuals must make in order to achieve the best returns, over a given period of time. In short, it is a science that studies the way in which money is allocated according to its various uses, with the aim of maximising returns.

Two distinct sciences

For example, an economic situation is calculated on the basis of the sum of the various elements that make up an asset, whereas the financial situation is assessed on the basis of the ability to repay and the solvency of a third party. The two fields are closely linked, but there are some notable differences that differentiate them. The main differences between economics and finance are outlined below.

Economics is concerned with production, the exchange of goods and services, the transfer of wealth and consumption. Finance, on the other hand, focuses on optimising an organisation’s funds, with the aim of making a return on an investment.

Economics differs from finance in its ability to optimise limited resources, whereas finance seeks to optimise and develop wealth. Another determining factor is that economics seeks to analyse and explain the reasons for a surplus or deficit, which can have an impact on society as a whole, whereas finance explains the source of changes in interest rates and fluctuations in the prices of consumer goods.

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