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"Financial" redirects here. For the Caucasian newspaper, see FI NANCIAL.

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Finance

Financial markets[show]
Financial instruments[show]
Corporate finance[show]
Personal finance[show]
Public finance[show]
Banks and banking[show]
Financial regulation[show]
Standards[show]
Economic history[show]
V
T
E
Finance is a field closely related to accounting that deals with the allocation
of assets and liabilities over time under conditions of certainty and
uncertainty. Finance also applies and uses the theories of economics at
some level. Finance can also be defined as the science of money
management. A key point in finance is the time value of money, which
states that purchasing power of one unit of currency can vary over time.
Finance aims to price assets based on their risk level and their
expected rate of return. Finance can be broken into three different sub-
categories: public finance, corporate finance and personal finance.
Contents
[hide]
1 Areas of finance
1.1 Personal finance
1.2 Corporate finance
1.2.1 Financial services
1.3 Public finance
2 Capital
3 Financial theory
3.1 Financial economics
3.2 Financial mathematics
3.3 Experimental finance
3.4 Behavioral finance
3.5 Intangible asset finance
4 Professional qualifications
5 See also
6 References
7 External links
Areas of finance[edit]

Wall Street, the center of American finance.
Personal finance[edit]
Main article: Personal finance
Questions in personal finance revolve around
Protection against unforeseen personal events, as well as events in the wider
economy
Transference of family across generations (bequests and inheritance)
Effects of tax policies (tax subsidies and/or penalties) on management of
personal finances
Effects of credit on individual financial standing
Planning a secure financial future in an environment of economic
instability
Personal finance 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 finance may also involve paying for a loan, or debt obligations.
The six key areas of personal financial planning, as suggested by the
Financial Planning Standards Board, are:
[1]

Financial position: is concerned with understanding the personal resources
available by examining net worth and household cash flow. Net worth is a
person's balance sheet, calculated by adding up all assets under that
person's control, minus all liabilities of the household, at one point in time.
Household cash flow totals up all the expected sources of income within a
year, minus all expected expenses within the same year. From this analysis,
the financial planner can determine to what degree and in what time the
personal goals can be accomplished.
Adequate protection: the analysis of how to protect a household from
unforeseen risks. These risks can be divided into liability, property, death,
disability, health and long term care. Some of these risks may be self-
insurable, while most will require the purchase of an insurance contract.
Determining how much insurance to get, at the most cost effective terms
requires knowledge of the market for personal insurance. Business owners,
professionals, athletes and entertainers require specialized insurance
professionals to adequately protect themselves. Since insurance also enjoys
some tax benefits, utilizing insurance investment products may be a critical
piece of the overall investment planning.
Tax planning: typically the income tax is the single largest expense in a
household. Managing taxes is not a question of if you will pay taxes, but
when and how much. Government gives many incentives in the form of tax
deductions and credits, which can be used to reduce the lifetime tax
burden. Most modern governments use a progressive tax. Typically, as
one's income grows, a higher marginal rate of tax must be paid.
[citation
needed]
Understanding how to take advantage of the myriad tax breaks when
planning one's personal finances can make a significant impact.
Investment and accumulation goals: planning how to accumulate enough
money - for large purchases and life events - is what most people consider
to be financial planning. Major reasons to accumulate assets include,
purchasing a house or car, starting a business, paying for education
expenses, and saving for retirement. Achieving these goals requires
projecting what they will cost, and when you need to withdraw funds. A
major risk to the household in achieving their accumulation goal is the rate
of price increases over time, or inflation. Using net present value
calculators, the financial planner will suggest a combination of asset
earmarking and regular savings to be invested in a variety of investments.
In order to overcome the rate of inflation, the investment portfolio has to
get a higher rate of return, which typically will subject the portfolio to a
number of risks. Managing these portfolio risks is most often accomplished
using asset allocation, which seeks to diversify investment risk and
opportunity. This asset allocation will prescribe a percentage allocation to
be invested in stocks, bonds, cash and alternative investments. The
allocation should also take into consideration the personal risk profile of
every investor, since risk attitudes vary from person to person.
Retirement planning is the process of understanding how much it costs to
live at retirement, and coming up with a plan to distribute assets to meet
any income shortfall. Methods for retirement plan include taking
advantage of government allowed structures to manage tax liability
including: individual (IRA) structures, or employer sponsoredretirement
plans.
Estate planning involves planning for the disposition of one's assets after
death. Typically, there is a tax due to the state or federal government at
one's death. Avoiding these taxes means that more of one's assets will be
distributed to one's heirs. One can leave one's assets to family, friends or
charitable groups.
Corporate finance[edit]
Main article: Corporate finance
Corporate finance is the area of finance dealing with the sources of funding
and the capital structure of corporations and the actions that managers
take to increase the value of the firm to the shareholders, as well as the
tools and analysis used to allocate financial resources. Although it is in
principle different from managerial finance which studies the financial
management of all firms, rather than corporations alone, the main concepts
in the study of corporate finance are applicable to the financial problems of
all kinds of firms. Corporate finance generally involves balancing risk and
profitability, while attempting to maximize an entity's wealth and the value
of its stock, and generically entails three primary areas of capital resource
allocation. In the first, "capital budgeting", management must choose
which "projects" (if any) to undertake. The discipline of capital
budgeting may employ standard business valuation techniques or even
extend to real options valuation; see Financial modeling. The second,
"sources of capital" relates to how these investments are to be funded:
investment capital can be provided through different sources, such as by
shareholders, in the form of equity (privately or via an initial public
offering), creditors, often in the form of bonds, and the firm's operations
(cash flow). Short-term funding or working capital is mostly provided by
banks extending a line of credit. The balance between these elements forms
the company's capital structure. The third, "the dividend policy", requires
management to determine whether any unappropriated profit (excess cash)
is to be retained for future investment / operational requirements, or
instead to be distributed to shareholders, and if so in what form. Short
term financial management is often termed "working capital
management", and relates to cash-, inventory- and debtors management.
Corporate finance also includes within its scope business valuation, stock
investing, or investment management. An investment is an acquisition of
an asset in the hope that it will maintain or increase its value over time.
In investment management in choosing a portfolio one has to use
financial analysis to determine what, how much and when to invest. To do
this, a company must:

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