Finance
Finance is a discipline that generally deals with the effective use of economic resources such as money management, investment, borrowing, savings and risk management. Finance focuses on how individuals, businesses and governments acquire, use and distribute their resources and manage the risks they encounter in the process. Finance holds an important place in the economy and is necessary for the healthy functioning of an economy.
The main purposes of finance are:
Resource Management: Finance involves the effective management of available resources (money, capital, assets, income). This includes the income and expenditure of individuals, the capital and cash flows of businesses, and the budgetary policies of governments.
Investment: Finance deals with the evaluation, selection and management of investment. People and organizations invest their available resources in various asset classes (stocks, bonds, real estate, etc.) to generate more income.
Financial Markets and Instruments: Finance deals with how financial markets and instruments function. These markets are places where financial instruments such as money, capital, bonds and stocks are bought and sold.
Risk Management: Finance involves the process of dealing with uncertainty and risk. Risk is managed using a variety of financial instruments and strategies to protect against future uncertainties.
Sustainability and Social Responsibility: Financial decisions should consider not only profit objectives but also social and environmental impacts. Sustainable finance brings together economic, environmental and social factors.
The importance of finance stands out as a fundamental element for individuals, businesses and societies. The healthy functioning of finance forms the basis of economic growth, stability and sustainable development.
Resource Allocation and Effective Use:
Finance enables effective management of limited resources. Individuals, businesses and governments can use their existing resources optimally and achieve the best results by developing financial strategies.
Economic Growth and Employment:
Finance forms the basis of economic growth by financing investments and managing capital flows. Businesses achieve growth by financing new projects, which increases employment.
Investment and Asset Valuation:
Finance helps individuals and organizations convert their savings into investments. These investments are evaluated, grow and create economic added value through financial instruments such as stocks, bonds and real estate.
Functioning of Financial Markets:
Financial markets facilitate the conversion of savings into investments. These markets enable the buying and selling of financial assets between buyers and sellers, provide liquidity, and serve price discovery.
Risk Management and Assurance:
Finance involves strategies for dealing with uncertainty and risk. Insurance, derivatives and other financial instruments are used to minimize risks and provide assurance.
Sustainability and Ethical Responsibility:
Financial decisions should also consider social and environmental impacts rather than being focused solely on profit. This has led to the emergence of sustainable finance and ethical investment concepts.
Increasing Social Welfare:
Finance contributes to increasing social welfare by ensuring the organized management of economic activities. Well-designed financial systems can reduce income inequality and create a more equitable economic structure.
Role in International Relations:
Finance plays an important role in trade and investment relations between countries. International finance ensures the integration of the global economy and contributes to the development of economic relations.
The importance of finance increases the well-being of individuals, businesses and societies by ensuring that the economic system operates effectively and efficiently. At the same time, finance is an important tool for maintaining economic stability and intervening in crisis situations.
Fundamental finance concepts include important terms that form the basis for developing understanding in finance and making financial decisions.
Time Value of Money:
Time value money refers to the principle that the value of money changes over time. It indicates that the amount of money received in the future may differ from its current value. It is related to factors such as interest, inflation and returns.
Return and Risk:
Return refers to the level of profitability of an investment. Risk is the degree of deviation from the expected return of the investment. Financial decisions involve trying to find the balance between return and risk.
Balance Sheet:
It is a financial statement that indicates a company's assets, liabilities and equity. Assets represent the resources the company has, while liabilities and equity represent the resources the company uses to finance those assets.
Income Statement:
An income statement is a financial statement that shows a company's income and expenses over a specific period. The income statement is used to evaluate the profitability and performance of the company.
Cash Flow Statement:
The cash flow statement shows a company's cash inflows and outflows over a specific period. It is important to evaluate the company's liquidity and understand its cash management.
Financial Ratios:
Financial ratios are mathematical indicators used to evaluate a company's financial performance. Examples include liquidity ratios, profitability ratios and financial leverage ratios.
Bonds and Stocks:
A bond is a company's debt instrument that offers investors a promise to repay the principal at a fixed interest rate at the end of a specified maturity. Stock is a financial instrument that belongs to the partners of a company and represents the ownership shares of the company.
Diversification:
Diversification aims to reduce risk by spreading investments across different asset classes and in different industries. This strategy limits the effects of risk by providing portfolio diversification.
Financial Leverage:
Financial leverage is when a company changes its capital structure by using debt and tries to provide higher returns to investors. But financial leverage can also increase risk.
Options and Futures:
Options are financial instruments that give the right to buy or sell an asset at a certain price on a certain date. Futures transactions involve a commitment to buy or sell an asset at a certain price on a certain date in the future.
These basic finance concepts are important tools that help individuals, businesses, and investors understand the financial world and make effective decisions.
