Sun. Jun 23rd, 2024

Finance deals with all the money-related activities that are undertaken by individuals, organizations, government and other entities for their purposes. 

A variety of financial products and services are available such as: personal loans, credit cards, mortgages, investment securities, derivatives (e.g., futures, options, currencies, commodities), investments (stock, mutual funds, bonds). The key to being a successful investor is knowledge of when to buy, when to sell, what to buy and when to drop out of the market.

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To invest is to put money into an investment with the hope of seeing a return/benefit in the near future. 

Simply put, to invest in securities means buying an item or an asset with the purpose of making money from the sale or the appreciation of that asset, which is usually an increase in the price of the item over a specified period of time. There are many different types of investments available including: bonds, mutual funds, stocks, securities in commodity markets, securities in foreign countries, and even derivatives (e.g., stock option). Some popular areas of investment are: real estate, stocks, bonds, currencies, and financial instruments.

Financial spread is the difference between the total profit or loss and the total capital gains on sales. 

This is usually confused with cost basis. The cost basis refers to the income recognized during a year as opposed to the income realized from capital gains and dividends. Dividends are usually paid by companies in order to receive a portion of their capital gains.

Financial reporting systems are typically established in a country such as the United States and developed through a system of accounting. There are different types of accounting including: internal, public, and third-party. Internal accounting is normally conducted by a company’s shareholders. Public accounting refers to those performed by non-financial services companies such as insurance companies, hospitals, and government agencies.

Financial instruments are any financial investment opportunities including: stocks, bonds, derivatives, mutual funds, property, accounts receivable, inventory, and financial liabilities. 

All investments need a borrower who will provide the funds needed to make the investment. Different financial institutions are then connected via the supply chain, with each institution playing a different role in completing the investment process. The supply chain can be categorized by the level of involvement and the end users of finance.

Many factors determine which of these different investments are the best investment choices. 

Factors influencing investment decisions include potential return, safety, time horizon, management of capital, and direct costs such as taxes. Return is determined by the amount invested and the potential it will generate over time. Safety is dependent upon the risk of loss and whether the investment will generate sufficient capital to cover ongoing expenses. Time horizon is how long an investor plans to hold the investment and its ability to produce the desired returns.

The income statement or balance sheet is the statement of income that Finance uses to determine the net worth of an investment. 

This includes: assets, liabilities, owner’s equity, retained earnings, net worth, and shareholders’ equity. All of these are stated in the same way as a standard company balance sheet. The financial statements give detailed information on the income and assets of an organization.

There are three main functions of finance that have differing levels of responsibility. 

These functions are retail financing, business finance, and financial advising. Retail financing is the borrowing of funds by a company to purchase goods and services. Business finance is the buying of financial goods and services from other businesses. Financial advising is advising to or about financial products.

Each of these three functions is important in different ways. 

Retail finance is used by retailers such as drugstores and groceries to finance their businesses. Business finance is used by corporations and other large organizations to purchase commercial real estate and equipment. Financial advising is used by individuals and other organizations to determine the best strategies for investing and corporate finance is used to manage their investments.

Investing refers to borrowing money and using it to make a profit. 

Two main types of investing are private and public. Private finance is for individuals and companies. Public finance is for the general public and can include loans, leases, and bonds.

Another aspect of personal finance includes paying bills. 

Personal saving accounts are used to invest money that is already earmarked for consumption. Examples of these types of savings accounts are CD’s, certificates of deposits, and money market accounts.

By Manali