Finance is the study of money and how it is used. Finance considers the relationship of money to time and risk. One of the main subsets of finance is the study of credit and banking, as this involves money, time, and risk all together. Finance may deal with personal or corporate issues, such as how will an individual or company acquires the money needed to perform a certain act.
Finance is often defined simply as the management of money or funds management.
Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created for transacting and trading assets, liabilities, and risks.
Finance is conceptualized, structured, and regulated by a complex system of power relations within political economies across state and global markets. Finance is both art (e.g. product development) and science (e.g. measurement), although these activities increasingly converge through the intense technical and institutional focus on measuring and hedging risk-return relationships that underlie shareholder value.
Loans are the extension of money from one party to another with the agreement that the money will be repaid. Nearly all loans (except for some informal ones) are made at interest, meaning borrowers pay a certain percentage of the principal amount to the lender as compensation for borrowing. Business loans have a maturity date, by which time the borrower must have repaid the loan.
A loan may be guaranteed by collateral, meaning that the lender either keeps an asset belonging to the borrower until the loan is repaid or has the right to seize such an asset in the event of default. Often, loans are obtained to purchase a major asset, such as a house. These loans are generally guaranteed by the asset they are used to buy. Lending is a foundational component of capitalism.
There are various methods lenders use to categorize loans, both for internal control and for reporting lending activity to governmental agencies, for example, classification by maturity, industry, security, and type of borrower.
Bank loans are normally classified by:
(1) Commercial & Industrial loans to business organizations;
(2) Interbank loans, which are mostly Federal Funds transactions, from one bank to another;
(3) Loan participations or loans to a single borrower shared by several banks;
(4) Real estate loans, which may be subdivided into construction loans and long-term mortgage loans; and
(5) Loans to consumers, such as auto loans and other forms of consumer installment credit.
What is money?
Money is any good that is widely used and accepted in transactions involving the transfer of goods and services from one person to another.
Economists differentiate among three different types of money: commodity money, fiat money, and bank money.
Commodity money is a good whose value serves as the value of money. Gold coins are an example of commodity money. In most countries, commodity money has been replaced with fiat money.
Fiat money is a good, the value of which is less than the value it represents as money. Dollar bills are an example of fiat money because their value as slips of printed paper is less than their value as money.
Bank money consists of the book credit that banks extend to their depositors. Transactions made using checks drawn on deposits held at banks involve the use of bank money.
Money is
1. A medium that can be exchanged for goods and services and is used as a measure of their values on the market, including among its forms a commodity such as gold, an officially issued coin or note, or a deposit in a checking account or other readily liquefiable account.
2. The official currency, coins, and negotiable paper notes issued by a government.
3. Assets and property considered in terms of monetary value; wealth.
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