Finance – Financial Ecosystem. When I think of the word “finance,” I associate it with Wall Street and banking. However, the reality is that finance can be defined as the interaction of money and financial systems at large. It encompasses a range of activities that are concerned with managing financial resources such as funds, assets, liabilities and financial markets. There are four main sectors that are involved in financial analysis and decision making: financial planning, investment, market design and operations and risk management.
Planning and the financial sector are interrelated but distinct concepts. The planning sector works for the benefit of the public by helping to establish policies and objectives and the way the economy should be managed. The policies and objectives of the financial sector relate to the achievement of economic objectives. Both need to be balanced and should be made to meet the needs of the overall economy.
Investment refers to the buying or selling of financial instruments, including bank loans, securities, bank savings accounts, bonds and equities. The buying and selling of financial instruments in this sector allow businesses and individuals to earn higher returns on their money. A major part of investment deals in the stock market occurs in the stock market. It also includes commercial real estate, such as apartment buildings, retail stores, industrial land and vacant land.
Market design involves the management of risks that arise from the supply, demand and valuation of money and financial products. For example, in the finance-related industries, credit risk is related to the risk of lending money. It also involves market risk, which is the risk associated with the purchase, sale, exchange or refinancing of securities in the financial sector. In risk management, banks, mortgage companies and other financial institutions try to understand, control, assess and minimize risks as much as possible.
Operations and risk management are connected but distinct concepts. The goal of operations is to make money while risk management focuses on reducing the risk in order to ensure maximum return on investments (ROI). The two concepts complement each other. Banks need operations and risk management while investors need the ability to earn higher ROI.
The world of finance – financial engineering is a highly diversified area of the finance industry. The field incorporates various approaches and theories of the financial management of the economy. Although the scope of finance – financial engineering is relatively wide, most sectors of the industry concentrate on one or two of the following areas. Risk analysis and market design are among the more popular subtopics of this niche.