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Finance is the application of the principles of financial economics to an inter-related set of monetary problems. Its aim is in the optimal use offinancial instruments. In the case of a company, this generally involves balancing risk and profitability and is typically calledmanagerial finance or corporate finance . Investment management is concerned with the identification of an optimal portfolio of assets, given a set of objectives and constraints, as well as withthe valuation of assets. Finance can also be used by individuals (called personal finance ), and by governments (called publicfinance ). Finance can be used by a wide variety of organizations including schools and non-profit organizations. In general, the goals of each of the above disciplines are achieved throughthe use of appropriate financial instruments, with consideration to their institutional setting.

1 Finance involves:

Finance involves:

  • Valuation
    • Determination of the fair value of an asset
      • How risky is the asset? (identification of the asset appropriate discount rate)
      • What cash flows will it produce? (discounting of relevant cash flows)
      • How does the market price compare to similar assets? (relative valuation)
      • Are the cash flows dependent on some other asset or event? (derivatives, contingent claim valuation)
  • Corporate and Managerial finance
    • Capital investment decisions - generally relating to a corporation's long term (fixed) assets and capital structure
    • Working capital management - relating to current assets and short term financing
  • Investment management
    • Identify relevant objectives and constraints: institution or individual - goals - time horizon - risk aversion - taxconsiderations
    • Identify the appropriate portfolio: what to invest in - how much to invest - when to invest
    • Identify the appropriate strategy: active vs passive - hedging strategy
    • Measure the portfolio performance
  • Public finance
    • Identification of required expenditure of a public sector entity
    • Source(s) of that entity's revenue
    • The budgeting process

Finding Finance Articles

There are over 250 finance articles in Wikipedia. See list of finance topics or List of finance topics (alphabetical) .

Finding related topics

External links

  • For an in-depth finance glossary, see Glyn A. Holton's riskglossary
  • For material covering three areas in finance - corporate finance, valuation and investment management, see Prof. Aswath Damodaran
  • For articles on current corporate finance and investment issues, visit Oaktree Research , a financial education portal
  • For illustrative (simpler) worked examples covering several of these topics see teachmefinance
  • For introductory articles covering mathematical finance see quantnotes

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