The Financial Environment

What Is Finance?

Finance has a complex definition, representing an environment, a career field, and personal and entrepreneurial investments.

Individuals are most commonly familiar and mainly concerned with personal finance, which encompasses everything an individual does to manage their money. For many people, experience with finance starts with a budget in high school or one’s first checking account, but the management of personal finance continues throughout people’s lives. For example, when Jim Smith started working, he might have invested in a 401(k)—a retirement investment account—or an individual retirement account (IRA)—a non–company-sponsored retirement savings account. This kind of planning requires interaction with a financial institution that conducts transactions, including investments and loans, or that accepts deposits. These institutions, such as banks and investment firms, provide investment opportunities where a risky asset can be purchased with the goal of achieving financial gain.

Finance is not just personally significant; it is also a major component of the business world. Some individuals and small businesses will approach investing from an entrepreneurial finance angle, by careful study of value and resource allocation applied to new or fast-growing ventures.

Finance is a field concerned with the allocation of assets and assumption of liabilities under conditions of risk and uncertainty. The financial environment is a continuously evolving and changing part of an economy where major players (financial and banking firms, investors, and markets) make decisions on the allocation of investments or resources.

The field of finance involves understanding the financial environment and predicting outcomes to attain the customer's goal, whether the customer is an individual or a corporation. Experts and trained individuals are often hired to help manage the finances of large corporations, and these experts may work as analysts, as CFOs, or in other financial roles. In their job functions, they may forecast profits and losses, set up the company's economic strategy, apply for a company loan, prepare monthly or quarterly financial statements, or help with the company's overall internal auditing. Their goal is to ensure the company achieves financial growth. If the outlook for success takes a downturn or stagnates, decision makers will need to be notified so they can implement a new strategy or change in direction. Financial experts may also be commercial bankers, investment bankers, hedge fund managers, private equity or venture capitalists, financial planners, insurance agents, or accountants. Some of these positions, such as those in investment banking, hedge fund management, financial planning, and insurance, help individuals invest in their futures.