CHAPTER 1: INTRODUCTION

1.1 Introduction to Fine Art

1.1.2 Finance
1.2 Fine Art History
1.4 Insurance
1.5 Appraisal and valuation
1.6

1.1 INTRODUCTION TO FINE ART:

What is art? – The dictionary definition of art says that it is “the conscious use
of skill and creative imagination especially in the production of aesthetic
objects” (Merriam-Webster)

Art is a diverse range or product of human activity that involves creative or

imaginative talent expressive of technical proficiency, beauty, emotional
power, or conceptual ideas. There is no generally agreed definition of what
constitutes art, and ideas have changed over time.

But the thing about art is that it’s so diverse that there are as many ways to
understand it as there are people. That’s why there are scholars who give their
own special definition of the word, such the one penned by this famous
Russian novelist, which goes: “Art is the activity by which a person, having
experienced an emotion, intentionally transmits it to others” – Leo Tolstoy
During his life, Tolstoy was known to write based on his life experiences, such
as his most famous work, “War and Peace” that used much of his experience
during the Crimean War.
And whether or not his definition of art is the best, the point is that people
look at art based on how they have experienced it.

Have you ever wanted to create something to express yourself? If so, you were
exploring a fundamental idea connected to fine art. Definitions can be slippery,
but in basic terms, fine art is something created for aesthetic or intellectual
value rather than utilitarian or practical purpose.
Fine art involves creative expression, and it doesn't have to be beautiful. It
might convey an idea or an emotion or explore social commentary. The
concept of ''art for art's sake,'' originated in the late 19th and early 20th
centuries, with the rise of abstract art - art that exists for its own purpose.

Today, the definition of fine art has expanded to include several more
categories such as film, photography, conceptual art, and printmaking.

1.1.2 FINANCE:

Finance is a term for the management, creation, and study of money and
investments. 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. Finance is then often
divided into the following broad categories: personal finance, corporate
finance, and public finance.

At the same time, and correspondingly, finance is about the overall "system"
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.
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. Asset allocation, the mix of
investments in the portfolio, is also fundamental here.

Although they are closely related, the disciplines of economics and finance are
distinct. The economy is a social institution that organizes a society's
production, distribution, and consumption of goods and services, all of which
must be financed. Similarly, although these areas overlap the financial function
of the accounting profession, financial accounting is the reporting of historical
financial information, whereas finance is forward looking.

the financial system consists of the flows of capital that take place between
individuals (personal finance), governments (public finance), and businesses
(corporate finance). "Finance" thus studies the process of channelling money
from savers and investors to entities that need it. Savers and investors have
money available which could earn interest or dividends if put to productive
use. Individuals, companies and governments must obtain money from some
external source, such as loans or credit, when they lack sufficient funds to
operate.

In general, an entity whose income exceeds its expenditure can lend or invest
the excess, intending to earn a fair return. Correspondingly, an entity where
income is less than expenditure can raise capital usually in one of two ways: (i)
by borrowing in the form of a loan (private individuals), or by selling
government or corporate bonds; (ii) by a corporation selling equity, also called
stock or shares (which may take various forms: preferred stock or common
stock). The owners of both bonds and stock may be institutional investors –
financial institutions such as investment banks and pension funds – or private
individuals, called private investors or retail investors.
The lending is often indirect, through a financial intermediary such as a bank,
or via the purchase of notes or bonds (corporate bonds, government bonds, or
mutual bonds) in the bond market. The lender receives interest, the borrower
pays a higher interest than the lender receives, and the financial intermediary
earns the difference for arranging the loan. A bank aggregates the activities of
many borrowers and lenders. A bank accepts deposits from lenders, on which
it pays interest. The bank then lends these deposits to borrowers. Banks allow
borrowers and lenders, of different sizes, to coordinate their activity.

finance comprises, broadly, the three areas of personal finance, corporate

finance, and public finance. Although they are numerous, other areas, such as
investments, risk management, quantitative finance / financial engineering -
discussed in the next section - and development finance typically overlap
these; likewise, specific arrangements such as public–private partnerships.

1)Personal finance
Wealth management consultation - here the financial advisor counsels the
client on an appropriate investment strategy
Main article: Personal finance
Personal finance is defined as "the mindful planning of monetary spending and
saving, while also considering the possibility of future risk". Personal finance
may involve paying for education, financing durable goods such as real estate
and cars, buying insurance, investing, and saving for retirement. Personal
finance may also involve paying for a loan or other debt obligations. The main
areas of personal finance are considered to be income, spending, saving,
investing, and protection.
The following steps, as outlined by the Financial Planning Standards Board,
suggest that an individual will understand a potentially secure personal finance
plan after:

• Purchasing insurance to ensure protection against unforeseen personal

events;
 • Understanding the effects of tax policies, subsidies, or penalties on the
management of personal finances;
• Understanding the effects of credit on individual financial standing;
• Developing a savings plan or financing for large purchases (auto,
education, home);
• Planning a secure financial future in an environment of economic
instability;
• Pursuing a checking and/or a savings account;
• Preparing for retirement or other long-term expenses.

2)Corporate finance
Founded in 1602, the Dutch East India Company (VOC), started off as a spice
trader, "going public" in the same year, with the world's first IPO.
Main articles: Corporate finance and financial management
Further information: Strategic financial management
Corporate finance deals with the actions that managers take to increase the
value of the firm to the shareholders, the sources of funding and the capital
structure of corporations, and the tools and analysis used to allocate financial
resources. While corporate finance is in principle different from managerial
finance, which studies the financial management of all firms rather than
corporations alone, the concepts are applicable to the financial problems of all
firms, and this area is then often referred to as “business finance”.

Typically, "corporate finance" relates to the long-term objective of maximizing

the value of the entity's assets, its stock, and its return to shareholders, while
also balancing risk and profitability. This entails three primary areas:

Capital budgeting: selecting which projects to invest in - here, accurately

determining value is crucial, as judgements about asset values can be "make or
break"
Dividend policy: the use of "excess" funds - are these to be reinvested in the
business or returned to shareholders
Capital structure: deciding on the mix of funding to be used - here attempting
to find the optimal capital mix re debt-commitments vs cost of capital
The latter creates the link with investment banking and securities trading, as
above, in that the capital raised will generically comprise debt, i.e., corporate
bonds, and equity, often listed shares. Re risk management in corporates, see
below.

Financial managers - i.e.as opposed to corporate financiers - focus more on the

short-term elements of profitability, cash flow, and "working capital
management" (inventory, credit and debtors), ensuring that the firm can safely
and profitably carry out its financial and operational objectives; i.e., that it:
(1) can service both maturing short-term debt repayments, and scheduled
long-term debt payments, and
(2) has sufficient cash flow for ongoing and upcoming operational expenses.
See Financial management § Role and Financial analyst § Corporate and other.

3) Public finance
President George W. Bush, speaking on the Federal Budget in 2007, here
requesting additional funds from Congress
2020 US Federal Revenues and Outlays
Main article: Public finance
Public finance describes finance as related to sovereign states, sub-national
entities, and related public entities or agencies. It generally encompasses a
long-term strategic perspective regarding investment decisions that affect
public entities. These long-term strategic periods typically encompass five or
more years. Public finance is primarily concerned with:

• Identification of required expenditures of a public sector entity;

• Source(s) of that entity's revenue;
• The budgeting process;
• Debt issuance, or municipal bonds, for public works projects.
Central banks, such as the Federal Reserve System banks in the United States
and the Bank of England in the United Kingdom, are strong players in public
finance. They act as lenders of last resort as well as strong influences on
monetary and credit conditions in the economy.

1.2 FINE ART HISTORY:

Art history might seem like a relatively straightforward concept: “art” and
“history” are subjects most of us first studied in elementary school. In practice,
however, the idea of “the history of art” raises complex questions. What
exactly do we mean by art, and what kind of history?
Art and finance coalesce in the elite world of fine art collecting and investing.
Investors and collectors can't protect and profit from their collections without
grappling with a range of complex issues like risk, insurance, restoration, and
conservation. They require intimate knowledge not only of art but also of
finance.
1.3 INSURANCE:

Insurance is a legal agreement between two parties i.e., the insurance

company (insurer) and the individual (insured). In this, the insurance company
promises to make good the losses of the insured on happening of the insured
contingency. The contingency is the event which causes a loss. It can be the
death of the policyholder or damage/destruction of the property. It’s called a
contingency because there’s an uncertainty regarding happening of the event.
The insured pays a premium in return for the promise made by the insurer.

The insurer and the insured get a legal contract for the insurance, which is
called the insurance policy. The insurance policy has details about the
conditions and circumstances under which the insurance company will pay out
the insurance amount to either the insured person or the nominees. Insurance
is a way of protecting yourself and your family from a financial loss. Generally,
the premium for a big insurance cover is much lesser in terms of money paid.
The insurance company takes this risk of providing a high cover for a small
premium because very few insured people actually end up claiming the
insurance. This is why you get insurance for a big amount at a low price. Any
individual or company can seek insurance from an insurance company, but the
decision to provide insurance is at the discretion of the insurance company.
The insurance company will evaluate the claim application to make a decision.
Generally, insurance companies refuse to provide insurance to high-risk
applicants.

For an individual art collector, a museum and an art exhibition, it is important

to get insurance to compensate the damage or loss. Burglary, physical losses
due to fire, scratches are some of the most common risks to the artworks. This
is when an art insurance provides a comprehensive coverage to the art
collection.

An art Insurance policy provides comprehensive protection to valuables like

paintings, sculptures and other collectibles from uncertainties, physical
damage due to theft, accident, etc. It provides compensation to the
policyholder in case of physical loss or damage to these valuable art items.

Drawings, paintings, prints, sculptures, stamps, coins, watches, and books are
some of the assets or forms of art that can be insured under art insurance
policy in India. This policy provides coverage:
• Against unforeseen and physical loss or damage
• For all insured property during transit
• Eligibility Criteria

Anyone who owns antique furniture, fine art, musical instruments, statues and
sculptures can take this insurance cover to protect the important collectibles
against unforeseen damage and loss.

Every insurance company follows a certain procedure to settle claims arising

out of the loss or damage to any artwork. Below are the steps for processing
the claims:
• In the event of any damage or loss to the article, immediately notify the
insurance company either through writing or by calling up on their
customer care number
• The insurance company appoints a surveyor to inspect the case. The
insured must cooperate with the surveyor and submit all relevant
documents
• Some private insurance companies in India boast to acknowledge the
loss reported on the same day when the incident is reported by the
insured to the insurance company
• Based on the mutually agreed resolution in line with the policy, the
insurance company provides compensation in terms of monetary losses,
repairs, or any other similar processes to restore the artwork

Following documents needs to be submitted to file claims under Art Insurance:

• Claim Form
 • Policy copy
• Evaluation of artwork
• FIR (in case of theft)
• Exclusions under Art Insurance

Insurance company is not liable to pay if the claim arises because of the
following events:
• Damage during repairing, restoring, retouching and any similar
processes
• Loss or damage due to natural wear and tear, rust or oxidation
• Consequential loss
• Loss or damage resulting from nuclear reaction, radiation or radioactive
contamination
• Loss from unattended vehicles
• Mysterious disappearance or unexplained loss
• Humidity, exposure to light or extremes of temperature
Listed below are the insurance companies which provide art insurance in India:
• HDFC Ergo
• Future Generali
• TATA AIG
• IFFCO Tokio

Advantages of Art Insurance

• The coverage under Art Insurance includes any unexpected and physical
damage or loss to the insured asset
• Some insurance companies in India also cover transportation of the art
piece from one place to another in India
• Provides wall-to-wall coverage for paintings, designs, and other forms of
artwork that can be displayed on a wall
• Certain policies also include the storage of the artwork within the
specified geographical or territorial limits for business or professional
reasons
• Damage or losses due to natural calamities like flood, earthquake,
cyclone, and other extreme weather conditions are also covered