Finance is a process of raising capital or funds for expenditure. Governments, business firms and consumers most at times lack the funds for expenditures, to complete transactions or even to pay debts and so they either borrow the funds or get selling their equity so as to complete the operations.

There are investors and savers who instead of borrowing accumulate funds that earn interest once used productively. The savings could accumulate as loan and savings shares, saving deposits or insurance and pension claims. Once the savings are loaned out with interest on such loans, they become source of funds from investment. Finance then becomes the process through which such funds are channeled as loans, credit or invested fund to the economic entities which can productively use the funds and also are in most need. The institutions responsible for channeling savers’ funds to users are referred as financial intermediaries and they include loan and savings associations, savings banks and commercial banks.

There are three major areas in finance which have resulted in specialized institutions, goals, standards and procedures. The three are:

Business finance

This area refers to a type of applied economics which makes use of quantities data given by economic theory, statistics tools and accounting so as to meet optimally the goals of a corporation. Basically, the financial decision made include estimating future requirements of assets and combination of funds required to get the assets. The business financing area uses short-term credit like commercial paper, bank loans and trade credit. For long-term funds securities such as bonds and stocks are sold to various individuals and financial institutions through operations of international and national capital markets.

Personal finance

Majorly, this sector deals with budgets at home, use of consumer credit and investing personal savings. For purchase of homes, individuals will go for mortgages from loan and savings associations as well as commercial banks. For financing to obtain consumer goods like appliances and automobiles, finances can be gotten from finance companies and banks. Credit cards and charge accounts also serve as ways through which business and banks extend to consumers short-term credit. For individuals seeking to borrow emergency cash or money to settle debts, small amounts of cash loans are obtained from finance companies, credit unions or bank. Personal finance is of importance when; preparing to get retired from work, pursuing for savings account, planning for secure future financially more so in economically instable environment and when purchasing insurance for unforeseen risks among others.

accountant woman working on desk business finance and accounting.

Public finance

Lately across the globe, importance and level of public finance is no the rise. Therefore, public debt, public expenditures and taxation have a higher effect on the economy of nations. For most expenditures in the Government, they are financed through taxes. Rarely do Government budgets balance and so such call s for deficits that are filled by borrowings hence public debt is created. Many public debts are made of securities which are easily marketable which means the government has to pay as agreed at specific times to the securities’ holders.