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Finance refers to the flow and management of money, encompassing all activities related to “money.” It primarily studies how to effectively allocate funds to meet the financial needs of individuals, businesses, and governments. The core goal of finance is to achieve wealth growth and risk mitigation through rational financial management.
1. The Three Major Areas of Finance:
- Personal Finance: Focuses on individual income, expenses, savings, investments, and risk management (e.g., financial planning, insurance).
- Corporate Finance: Deals with corporate fundraising, investment decisions, and financial management (e.g., financing, mergers and acquisitions).
- Public Finance: Concerns government revenue, expenditure, and debt management (e.g., taxation, national debt).
2. The Core Functions of Finance:
- Fund Circulation: Transferring funds from surplus entities (e.g., savers) to those in need (e.g., businesses).
- Risk Management: Reducing potential losses caused by uncertainty through tools like insurance and hedging.
- Resource Allocation: Allocating funds to the most efficient areas to promote economic development.
3. Key Financial Tools:
- Banks: Provide services such as savings, loans, and payments.
- Securities: Such as stocks and bonds, used for investment and financing.
- Insurance: Transfers risk through premium payments.
- Funds: Pool investors’ money for professional management.
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