For the Slovenian newspaper see Finance (newspaper). This article has multiple issues. Please help improve it or discuss these issues on the talk page. It needs additional references or sources for verification. Tagged since June 2007. It is in a list format that may be better presented using prose. Tagged since January 2008. It may need a complete rewrite to meet Wikipedia's quality standards. Tagged since February 2008. Finance Financial markets Bond market

Stock market (equity market) Foreign exchange market Derivatives market Commodity market Money market Spot market (cash market) Over the counter Real estate Private equity Financial market participants: Investor and speculator Institutional and retail Financial instruments Cash:

Deposit Option (call or put) Loans Security Derivative Stock Time deposit or certificate of deposit Futures contract Exotic option Corporate finance Structured finance

Capital budgeting Financial risk management Mergers and acquisitions Accountancy Financial statement Audit Credit rating agency Leveraged buyout Venture capital Personal finance Credit and debt

Student financial aid Employment contract Retirement Financial planning Public finance Government spending:

Transfer payment (Redistribution) Government operations Government final consumption expenditure Government revenue: Taxation Non-tax revenue Government budget Government debt Surplus and deficit deficit spending Warrant (of payment) Banks and banking Fractional-reserve banking

Central Bank List of banks Deposits Loan Money supply Financial regulation Finance designations Accounting scandals Standards ISO 31000 International Financial Reporting Economic history Stock market bubble

Recession Stock market crash History of private equity v d e

Finance (pronounced /fnnts/ or / fannts/) is the science of funds management.1 The general areas of finance are business finance personal finance(private finance) and public finance.2 Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time money risk and how they are interrelated. It also deals with how money is spent and budgeted.

One facet of finance is through individuals and business organizations which deposit money in a bank. The bank then lends the money out to other individuals or corporations for consumption or investment and charges interest on the loans. Loans have become increasingly packaged for resale meaning that an investor buys the loan (debt) from a bank or directly from a corporation. Bonds are debt instruments sold to investors for organizations such as companies governments or charities.3 The investor can then hold the debt and collect the interest or sell the debt on a secondary market. Banks are the main facilitators of funding through the provision of credit although private equity mutual funds hedge funds and other organizations have become important as they invest in various forms of debt. Financial assets known as investments are financially managed with careful attention to financial risk management to control financial risk. Financial instruments allow many forms of securitized assets to be traded on securities exchanges such as stock exchanges including debt such as bonds as well as equity in publicly traded corporations. Central banks such as the Federal Reserve System banks in the United States and Bank of England in the United Kingdom are strong players in public finance acting as lenders of last resort as well as strong influences on monetary and credit conditions in the economy.4 Contents 1 Overview of techniques and sectors of the financial industry 2 Personal finance 3 Corporate finance 3.1 Capital 3.2 The desirability of budgeting 3.2.1 Capital budget 3.2.2 Cash budget 3.3 Management of current assets 3.3.1 Credit policy 3.3.1.1 Advantages of credit trade 3.3.1.2 Disadvantages of credit trade 3.3.1.3 Forms of credit 3.3.1.4 Factors which influence credit conditions 3.3.1.5 Credit collection 3.3.1.5.1 Overdue accounts 3.3.1.5.2 Effective credit control 3.3.1.5.3 Sources of information on creditworthiness 3.3.1.5.4 Duties of the credit department 3.3.2 Stock 3.3.3 Cash 3.3.3.1 Reasons for keeping cash 3.3.3.2 Advantages of sufficient cash 3.4 Management of fixed assets 3.4.1 Depreciation 3.4.2 Insurance 3.5 Shared Services 4 Finance of public entities 5 Financial economics 6 Financial mathematics 7 Experimental finance 8 Behavioral finance 9 Intangible Asset Finance 10 Related professional qualifications 11 See also 12 References 13 External links Overview of techniques and sectors of the financial industry Main article: Financial services An entity whose income exceeds its expenditure can lend or invest the excess income. On the other hand an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims decreasing its expenses or increasing its income. The lender can find a borrower a financial intermediary such as a bank or buy notes or bonds in the bond market. The lender receives interest the borrower pays a higher interest than the lender receives and the financial intermediary earns the difference for arranging the loan. A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders of different sizes to coordinate their activity. Finance is used by individuals (personal finance) by governments (public finance) by businesses (corporate finance) and by a wide variety of other organizations including schools and non-profit organizations. In general the goals of each of the above activities are achieved through the use of appropriate financial instruments and methodologies with consideration to their institutional setting. Finance is one of the most important aspects of business management and includes decisions related to the use and acquisition of funds for the enterprise. In corporate finance a company's capital structure is the total mix of financing methods it uses to raise funds. One method is debt financing which includes bank loans and bond sales. Another method is equity financing - the sale of stock by a company to investors. Possession of stock gives the investor ownership in the company in proportion to the number of shares the investor owns. In return for the stock the company receives cash which it may use to expand its business or to reduce its debt.5 Investors in both bonds and stock may be institutional investors - financial institutions such as investment banks and pension funds - or private individuals called private investors or retail investors. Personal finance Main article: Personal finance Questions in personal finance revolve around How much money will be needed by an individual (or by a family) and when How can people protect themselves against unforeseen personal events as well as those in the external economy How can family assets best be transferred across generations (bequests and inheritance) How does tax policy (tax subsidies or penalties) affect personal financial decisions How does credit affect an individual's financial standing How can one plan for a secure financial future in an environment of economic instability Personal financial decisions may involve paying for education financing durable goods such as real estate and cars buying insurance e.g. health and property insurance investing and saving for retirement. Personal financial decisions may also involve paying for a loan or debt obligations. Corporate finance Main article: Corporate finance Managerial or corporate finance is the task of providing the funds for a corporation's activities. For small business this is referred to as SME finance (Small and Medium Enterprises). It generally involves balancing risk and profitability while attempting to maximize an entity's wealth and the value of its stock. Long term funds are provided by ownership equity and long-term credit often in the form of bonds. The balance between these elements forms the company's capital structure. Short-term funding or working capital is mostly provided by banks extending a line of credit. Another business decision concerning finance is investment or fund management. An investment is an acquisition of an asset in the hope that it will maintain or increase its value. In investment management  in choosing a portfolio  one has to decide what how much and when to invest. To do this a company must: Identify relevant objectives and constraints: institution or individual goals time horizon risk aversion and tax considerations; Identify the appropriate strategy: active v. passive  hedging strategy Measure the portfolio performance Financial management is duplicate with the financial function of the Accounting profession. However financial accounting is more concerned with the reporting of historical financial information while the financial decision is directed toward the future of the firm. Capital Main article: Financial capital Capital in the financial sense is the money that gives the business the power to buy goods to be used in the production of other goods or the offering of a service. (The capital has two types of resources Equity and Debt) The desirability of budgeting Budget is a document which documents the plan of the business. This may include the objective of business targets set and results in financial terms e.g. the target set for sale resulting cost growth required investment to achieve the planned sales and financing source for the investment. Also budget may be long term or short term. Long term budgets have a time horizon of 510 years giving a vision to the company; short term is an annual budget which is drawn to control and operate in that particular year. Capital budget This concerns proposed fixed asset requirements and how these expenditures will be financed. Capital budgets are often adjusted annually and should be part of a longer-term Capital Improvements Plan. Cash budget Working capital requirements of a business should be monitored at all times to ensure that there are sufficient funds available to meet short-term expenses. The cash budget is basically a detailed plan that shows all expected sources and uses of cash. The cash budget has the following six main sections: Beginning Cash Balance - contains the last period's closing cash balance. Cash collections - includes all expected cash receipts (all sources of cash for the period considered mainly sales) Cash disbursements - lists all planned cash outflows for the period excluding interest payments on short-term loans which appear in the financing section. All expenses that do not affect cash flow are excluded from this list (e.g. depreciation amortization etc.) Cash excess or deficiency - a function of the cash needs and cash available. Cash needs are determined by the total cash disbursements plus the minimum cash balance required by company policy. If total cash available is less than cash needs a deficiency exists. Financing - discloses the planned borrowings and repayments including interest. Ending Cash balance - simply reveals the planned ending cash balance. Management of current assets Credit policy Credit gives the consumer the opportunity to buy purchase or acquire goods and services and pay for them at a later date. This has its advantages and disadvantages as follows: Advantages of credit trade Usually results in more customers than cash trade. Can charge more for goods to cover the risk of bad debt. Gain goodwill and loyalty of customers. People can buy goods and pay for them at a later date. Farmers can buy seeds and implements and pay for them only after the harvest. Stimulates agricultural and industrial production and commerce. Can be used as a promotional tool. Increases sales. Modest rates to be filled. Can be a marketing tool. Disadvantages of credit trade Risk of bad debt. High administration expenses. People can buy more than they can afford. More working capital needed. Risk of bankruptcy. Forms of credit Suppliers credit Credit on ordinary open account Installment sales Bills of exchange Credit cards Contractor's credit Factoring of debtors Cash credit Cpf credits Exchange of product Factors which influence credit conditions Nature of the business's activities Financial position Product durability Length of production process Competition and competitors' credit conditions Country's economic position Conditions at financial institutions Discount for early payment Debtor's type of business and financial position Credit collection Overdue accounts Attach a notice of overdue account to statement. Send a letter asking for settlement of debt. Send a second or third letter if first is ineffectual. Threaten legal actions. Effective credit control Increases sales Reduces bad debts Increases profits Builds customer loyalty Builds confidence of financial industry Increase company capitalisation Increase the customer relationship Sources of information on creditworthiness Business references Bank references Credit agencies Chambers of commerce Employers Credit application forms Duties of the credit department Legal action Taking necessary steps to ensure settlement of account Knowing the credit policy and procedures for credit control Setting credit limits Ensuring that statements of account are sent out Ensuring that thorough checks are carried out on credit customers Keeping records of all amounts owing Ensuring that debts are settled promptly Timely reporting to the upper level of management for better management. Stock Purpose of stock control Ensures that enough stock is on hand to satisfy demand. Protects and monitors theft. Safeguards against having to stockpile. Allows for control over selling and cost price. Stockpiling Main article: Cornering the market This refers to the purchase of stock at the right time at the right price and in the right quantities. There are several advantages to the stockpiling the following are some of the examples: Losses due to price fluctuations and stock loss kept to a minimum Ensures that goods reach customers timeously; better service Saves space and storage cost Investment of working capital kept to minimum No loss in production due to delays There are several disadvantages to the stockpiling the following are some of the examples: Obsolescence Danger of fire and theft Initial working capital investment is very large Losses due to price fluctuation Rate of stock turnover This refers to the number of times per year that the average level of stock is sold. It may be worked out by dividing the cost price of goods sold by the cost price of the average stock level. Determining optimum stock levels Maximum stock level refers to the maximum stock level that may be maintained to ensure cost effectiveness. Minimum stock level refers to the point below which the stock level may not go. Standard order refers to the amount of stock generally ordered. Order level refers to the stock level which calls for an order to be made. Cash Reasons for keeping cash Cash is usually referred to as the "king" in finance as it is the most liquid asset. The transaction motive refers to the money kept available to pay expenses. The precautionary motive refers to the money kept aside for unforeseen expenses. The speculative motive refers to the money kept aside to take advantage of suddenly arising investment opportunities. Advantages of sufficient cash Current liabilities may be catered for meeting the current obligations of the company Cash discounts are given for cash payments. Production is kept moving Surplus cash may be invested on a short-term basis. The business is able to pay its accounts in a timely manner allowing for easily obtained credit. Liquidity Quick upfront pay. Management of fixed assets Depreciation Depreciation is the allocation of the cost of an asset over its useful life as determined at the time of purchase. It is calculated yearly to enforce the matching principle. Insurance Main article: Insurance Insurance is the undertaking of one party to indemnify another in exchange for a premium against a specific possibility. Uninsured risks Bad debt Changes in fashion Time lapses between ordering and delivery New machinery or technology Different prices at different places Requirements of an insurance contract Insurable interest The insured must derive a real financial gain from that which he is insuring or stand to lose if it is destroyed or lost. The item must belong to the insured. One person may take out insurance on the life of another if the second party owes the first money. Must be some person or item which can legally be insured. The insured must have a legal claim to that which he is insuring. Good faith Uberrimae fidei refers to absolute honesty and must characterise the dealings of both the insurer and the insured. Shared Services There is currently a move towards converging and consolidating Finance provisions into shared services within an organization. Rather than an organization having a number of separate Finance departments performing the same tasks from different locations a more centralized version can be created. Finance of public entities Main article: Public finance Public finance describes finance as related to sovereign states and sub-national entities (states/provinces counties municipalities etc.) and related public entities (e.g. school districts) or agencies. It is concerned with: Identification of required expenditure of a public sector entity Source(s) of that entity's revenue The budgeting process Debt issuance (municipal bonds) for public works projects Financial economics Main article: Financial economics Financial economics is the branch of economics studying the interrelation of financial variables such as prices interest rates and shares as opposed to those concerning the real economy. Financial economics concentrates on influences of real economic variables on financial ones in contrast to pure finance. It studies: Valuation - Determination of the fair value of an asset How risky is the asset (identification of the asset-appropriate discount rate) What cash flows will it produce (discounting of relevant cash flows) How does the market price compare to similar assets (relative valuation) Are the cash flows dependent on some other asset or event (derivatives contingent claim valuation) Financial markets and instruments Commodities - topics Stocks - topics Bonds - topics Money market instruments- topics Derivatives - topics Financial institutions and regulation Financial Econometrics is the branch of Financial Economics that uses econometric techniques to parameterize the relationships. Financial mathematics Main article: Financial mathematics Financial mathematics is a main branch of applied mathematics concerned with the financial markets. Financial mathematics is the study of financial data with the tools of mathematics mainly statistics. Such data can be movements of securitiesstocks and bonds etc.and their relations. Another large subfield is insurance mathematics. This is also known as quantitative finance practitioners as Quantitative analysts. Experimental finance Main article: Experimental finance Experimental finance aims to establish different market settings and environments to observe experimentally and provide a lens through which science can analyze agents' behavior and the resulting characteristics of trading flows information diffusion and aggregation price setting mechanisms and returns processes. Researchers in experimental finance can study to what extent existing financial economics theory makes valid predictions and attempt to discover new principles on which such theory can be extended. Research may proceed by conducting trading simulations or by establishing and studying the behaviour of people in artificial competitive market-like settings. Behavioral finance Main article: Behavioral finance Behavioral Finance studies how the psychology of investors or managers affects financial decisions and markets. Behavioral finance has grown over the last few decades to become central to finance. Behavioral finance includes such topics as: Empirical studies that demonstrate significant deviations from classical theories. Models of how psychology affects trading and prices Forecasting based on these methods. Studies of experimental asset markets and use of models to forecast experiments. A strand of behavioral finance has been dubbed Quantitative Behavioral Finance which uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation. Some of this endeavor has been led by Gunduz Caginalp (Professor of Mathematics and Editor of Journal of Behavioral Finance during 2001-2004) and collaborators including Vernon Smith (2002 Nobel Laureate in Economics) David Porter Don Balenovich Vladimira Ilieva Ahmet Duran). Studies by Jeff Madura Ray Sturm and others have demonstrated significant behavioral effects in stocks and exchange traded funds. Among other topics quantitative behavioral finance studies behavioral effects together with the non-classical assumption of the finiteness of assets. Intangible Asset Finance Main article: Intangible asset finance Intangible asset finance is the area of finance that deals with intangible assets such as patents trademarks goodwill reputation etc. Related professional qualifications There are several related professional qualifications in finance that can lead to the field: Accountancy: Qualified accountant: Chartered Accountant (ACA - UK certification / CA - certification in Commonwealth countries) Chartered Certified Accountant (ACCA UK certification) Certified Public Accountant (CPA US certification) ACMA/FCMA ( Associate/Fellow Chartered Management Accountant) from Chartered Institute of Management Accountant(CIMA) UK. Non-statutory qualifications: Chartered Cost Accountant CCA Designation from AAFM Business qualifications: Master of Business Administration (MBA) Bachelor of Business Management (BBM) Master of Commerce (M.Comm) Master of Science in Management (MSM) Doctor of Business Administration (DBA) Generalist Finance qualifications: Degrees: Masters degree in Finance (MSF) Master of Financial Economics Master of Finance & Control (MFC) Master Financial Manager (MFM) Master of Financial Administration (MFA) Certifications: Chartered Financial Analyst (CFA) Certified Treasury Professional (CTP) Certified Valuation Analyst (CVA) Certified International Investment Analyst (CIIA) Association of Corporate Treasurers (ACT) Certified Market Analyst (CMA/FAD) Dual Designation Corporate Finance Qualification (CF) Chartered Alternative Investment Analyst (CAIA) Quantitative Finance qualifications: Master of Science in Financial Engineering (MSFE) Master of Quantitative Finance (MQF) Master of Computational Finance (MCF) Master of Financial Mathematics (MFM) Certificate in Quantitative Finance (CQF). See also Main article: Outline of finance Book: Finance Wikipedia Books are collections of articles that can be downloaded or ordered in print. Financial crisis of 20072010 References Gove P. et al. 1961. Finance. Webster's Third New International Dictionary of the English Language Unabridged. Springfield Massachusetts: G. & C. Merriam Company. finance. (2009). In Encyclopdia Britannica. Retrieved June 23 2009 from Encyclopdia Britannica Online: Finance Charitytimes.com Board of Governors of Federal Reserve System of the United States. Mission of the Federal Reserve System. Federalreserve.gov Accessed: 2010-01-16. (Archived by WebCite at Webcitation.org) Business.timesonline.co.uk External links Look up finance in Wiktionary the free dictionary. Wikiversity has learning materials about Finance Wikisource has the text of the 1921 Collier's Encyclopedia article Finance. OECD work on financial markets Observation of UK Finance Market Wharton Finance Knowledge Project - aimed to offer free access to finance knowledge for students teachers and self-learners. Professor Aswath Damodaran (New York University Stern School of Business) - provides resources covering three areas in finance: corporate finance valuation and investment management and syndicate finance.