What is finance?

What Does finance Mean

According to the dictionary of the Royal Spanish Academy (RAE) , the term finance comes from the French finance and refers to the obligation that a subject assumes to respond to the obligation of another person . The concept also refers to flows , goods and public finances .

In everyday language the term refers to the study of the circulation of money between individuals, companies or different States . Thus, finance appears as a branch of the economy that is dedicated to analyzing how funds are obtained and managed. In other words, finance takes care of money management .

The notion of personal finances refers, in principle, to the money that a family needs for subsistence. The person must analyze how to obtain said money and how to protect it against unforeseen situations (such as a job dismissal). Other applications of personal finance refer to the ability to save, spending and investing . Within this branch of finance, they are dedicated to looking for alternatives for the lives of the particular individuals of a society to advise them on how to invest their money in order to achieve a positive balance, where losses decrease and, through a sustainable economy, collaborate with the environment and increase the quality of life.
The corporate finance , meanwhile, focus on the ways that companies have to create value through the use of financial resources. Investment, financing, benefits and dividend are some of the concepts linked to this area.
Related concepts
There are a series of concepts whose meaning allows us to understand even more the movement of money and the way in which finances are organized. Some of them are the ones we cite below.
* Risk and benefit : refers to the search for an increase in profits without investing more than is advisable, that is, minimizing the risks of the investment. If the investor is willing to face greater uncertainty, his returns may be greater;

* Value of money in time : it refers to the fluctuation that money experiences over time, that is, to the change it represents between the present and the future (money, when invested, acquires a future value potentially greater than what today owns). Over time, money has been a fundamental element for the economic growth of the countries, however the increase in inflation and certain state strategies that are not very beneficial for the finances of the territory, mean that it has been devalued so much already over time, therefore, money instead of charging a higher value, loses it.
* Interest rate or interest rate : it is the value that is paid for the funds requested in loan, which responds to the exchange that exists between the value of the current money and the one it will have in the future ( speculation ). When the interest rate rises, both consumption and investment decrease since citizens lose the ability to pay their debts, therefore, when decreasing, these elements increase as they receive a significant stimulus for being able to pay less interest. This concept is very present in those who draw up macroeconomic policieswhen trying to boost economic growth; however, it is extremely dangerous because in many cases it leads to severe economic problems in the future, as it cannot bear the costs that the "citizens' debt" has left uncovered for a certain amount of time.
Finally, we can say that public finances are related to the fiscal policy of a State. The government obtains funds through the collection of taxes and that money is reinvested in society through public spending (with the construction of hospitals and schools, taking care of cleaning, etc.).

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