FINANCE

FINANCE studies and addresses the ways in which individuals, businesses, and organizations raise, allocate,

and use monetary resources over time, taking into account the risks entailed in their projects. The

term "finance" may thus incorporate any of the following:

* The study of money and other assets;
* The management and control of those assets;
* Profiling and managing project risks;
* The science of managing money;
* As a verb, "to finance" is to provide funds for business or for an individual's large purchases

(car, home, etc.).

The activity of finance is the application of a set of techniques that individuals and organizations

(entities) use to manage their money, particularly the differences between income and expenditure

and the risks of their investments.

An income that exceeds its expenditure can lend or invest the excess income. On the other hand, an

entity whose income is less than its expenditure can raise capital by borrowing or selling equity

claims, decreasing its expenses, or increasing its income. The lender can find a borrower, a financial

intermediary, such as a bank or buy notes or bonds in the bond market. The lender receives interest,

the borrower pays a higher interest than the lender receives, and the financial intermediary pockets

the difference.

A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from

lenders, on which it pays the interest. The bank then lends these deposits to borrowers. Banks allow

borrowers and lenders, of different sizes, to coordinate their activity. Banks are thus compensators

of money flows in space.

A specific example of corporate finance is the sale of stock by a company to institutional investors

like investment banks, who in turn generally sell it to the public. The stock gives whoever owns it

part ownership in that company. If you buy one share of XYZ Inc, and they have 100 shares

outstanding (held by investors), you are 1/100 owner of that company. Of course, in return for the

stock, the company receives cash, which it uses to expand its business in a process called "equity

financing". Equity financing mixed with the sale of bonds (or any other debt financing) is called the

company's capital structure.

Finance is used by individuals (personal finance), by governments (public finance), by businesses

(corporate finance), etc., as well as by a wide variety of organizations including schools and non-

profit organizations. In general, the goals of each of the above activities are achieved through the

use of appropriate financial instruments, with consideration to their institutional setting.