The Power of Finance: Understanding its Role in the World Economy

Finance encompasses all financial activities and decisions, from the acquisition of assets to the payment of debt. It is a science that draws from such disciplines as accounting, statistics, mathematics, economics and law. The practice of finance is to optimize the financial resources of business firms, individuals and governments by channeling money to where it is most useful and productive.

In essence, finance is all about balance: balancing what one owns (assets) against what they owe (debt and liabilities). As such, the field of finance relies heavily on mathematical formulas and models to determine optimal strategies for managing cash flow and risk in-order to maximize value.

Individuals engage in various financial activities as they work toward achieving their personal, family and societal goals. These include saving, investing, and borrowing in-order to increase the amount of capital available for future expenditures. Business firms, governmental agencies and non-profits also engage in these activities but on a larger scale and with more complexity.

For example, accounting records the day-to-day financial activity of a company by tracking expenses and income through debit and credit entries. Then there is the practice of analyzing these recorded transactions to detect trends and prepare reports for management. Finance also includes the study of financial markets and institutions, such as stock exchanges and monetary policy.

A bachelor’s degree in finance prepares students for careers involving the review of financial statements and budgets, preparing securities and investments, advising clients on their personal financial matters, and planning for cash flows in an uncertain future. A master’s degree in finance hones these skills and provides additional opportunities for specialization.

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