Finance is a broad term encompassing various subjects concerning the study, development, management and accumulation of financial resources. In particular, it covers the issues of why an individual, firm or government takes up the money necessary for investment purposes-called capital in the business context; and what kind of return they expect to derive from that investment. Finance is intimately involved in all economic activities and decisions. Some people are regarded as born with no money and therefore no way of being able to understand what finance is all about; others however are quite aware of finance’s role and importance in their lives. It is therefore not surprising that there are many individuals and institutions who try to study finance as a part of their post-secondary education.

The study of finance usually begins with an introduction to the theory and methodology of finance, followed by an account of the practice of financial institutions and their role in ensuring the smooth flow of capital from one generation to another. They then move on to the study of securities and financial markets. Then there is the introduction of the word ‘finance’ itself, which refers to the activity of making financial investments and decisions. Finally, there are a look at some typical institutions that make, trade and manage securities and financial instruments.

One of the most popular theories of modern economics is that of the theory of demand and supply. This theory is what underlies modern banking systems. According to this theory, financial markets function on the basis of relative supply and demand. If demand for some asset exceeds the supply available for it, then the prices of those assets will rise above the level of demand. Conversely, if there is a surplus of supply of an asset then demand for it exceeds the supply available, then the prices of that asset fall below the level of demand.

Another one of the prominent modern financial theories is behavioral finance. The aim of behavioral finance is to provide economic managers with tools to understand and interpret data pertaining to individual behavior. The main focus of this type of theory is to explain how people make decisions despite the knowledge of its consequences. For example, an agent may be expected to buy a stock based on the expectation of future earnings.

Behavior of corporations is studied under the broader context of behavioral finance. This involves analyzing and predicting behaviour of corporate organizations. The main three theories of modern financial management are namely: Durable Funds Theory, Long-Term Care Insurance Theory and Income Forecasting Theory. Within these theories, the three main categories include:

Finance in the corporate sector is a constantly changing field due to intense competition, global trends and rapid innovation. Therefore, the theoretical framework of finance includes many different concepts and conceptualizations that are essential for understanding the financial decisions of corporate organizations. Finance in the corporate sector is also influenced by numerous policies and reforms that take place across different countries. Therefore, globalization has had a significant impact on the field of finance.

By Arlene Huff

Arlene Huff is the founding member of Golden State Online. Before that She was a general assignment reporter. A native Californian, she graduated from the University of California with a degree in medical anthropology and global health. She currently lives in Los Angeles.

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