The essence and function of finance

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Finance is a term for matters regarding the management, creation, and study of money and investments. [1][note 1] Specifically, it deals with the questions of how an individual, company or government acquires money – called capital in the context of a business – and how they spend or invest that money.[2] Finance is then often divided into the following broad categories: personal finance, corporate finance, and public finance.[1]

At the same time, and correspondingly, finance is about the overall "system" [1] i.e., the financial markets that allow the flow of money, via investments and other financial instruments, between and within these areas; this "flow" is facilitated by the financial services sector. Finance therefore refers to the study of the securities markets, including derivatives, and the institutions that serve as intermediaries to those markets, thus enabling the flow of money through the economy.[3]
A major focus within finance is thus investment management – called money management for individuals, and asset management for institutions – and finance then includes the associated activities of securities trading and stock broking, investment banking, financial engineering, and risk management. Fundamental to these areas is the valuation of assets such as stocks, bonds, loans, but also, by extension, entire companies.[4]Asset allocation, the mix of investments in the portfolio, is also fundamental here.

A financial system is a set of institutions, such as banks, insurance companies, and stock exchanges, that permit the exchange of funds. ... Borrowers, lenders, and investors exchange current funds to finance projects, either for consumption or productive investments, and to pursue a return on their financial assets.

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