Finance: Definition, Types And Examples

We explain what finance is and the types of finance that exist. In addition, some characteristics of this economic science.

What is finance?

The concept of finance  refers to the analysis , techniques and decisions taken , in a certain period of time , by the state, companies or individuals, for the use and management of money and other assets. This is a branch of economic sciences.

There are those who define finance as an art since it is very complex to reach a balance between the income of money, its expenditure , without forgetting the investment risks . To name a few basic issues that are taken into account in finance are how much to save, spend, invest, lend and how much risk can be assumed.

Types of Finance

There are several ways to classify finances, one of them is according to who will use them and what their objectives are . If it is the case of a state they will be called public finances, if for personal use they will be called personal finances and in case of being used by companies the name of corporate finances will be acquired.

• The corporate finance . Their main objective is to increase business profits; for which investment and financing is required. The way to perform this task is from the appreciation of their actions. These finances are usually related to investment banking. Bankers take into account what are the shortcomings of corporations and try to solve this issue from the transfer of capital . In this way certain associations usually arise.
• The personal finance . they are related to expenses, income, savings , investments, risks and even speculation, but to a much smaller extent, it is usually related to families . There are those who consider that in many cases personal finances are of great importance since in a large percentage the problem does not lie in low income but in the failures in managing it and the imbalance between liabilities and assets.
• The public finances . refers to state finances. The elements that are taken into account are public expenses and public revenues, both external and internal indebtedness, expenditures on goods and services produced by the states and in parallel with them.

The states must be very cautious in their fiscal policies since they have direct repercussions on the macroeconomy , whether in consumption , investment or savings, not only of citizens , but also of large companies.

The states can opt for deficit, surplus or equilibrium balances , that is to say that the result between income and expenses is negative, positive or equal to zero. In the first case, companies gain a certain saving and investment capacity, in the second case the states increase their capacity to invest and save.