BASICS OF FINANCE

BY : AAYUSH PALIWAL
 WHAT IS FINANCE?

• Financeis the application of

economic principles for
management of money and other
valuables under condition of
uncertainty.

• It describe the management,

creation and study of money,
banking, credit, investment, assets,
liability etc.
 AREAS OF FINANCE
• Field of finance comprised of three areas:

1. Capital markets
2. Financial management.
3. Investment management.
 CAPITAL MARKETS
• Capital markets refer to the venues where funds are exchanged
between suppliers of capital and those who demand capital for
use.

• Primary capital markets are where new securities are issued

and sold.

• The secondary market is where previously issued securities are

traded between investors.

• The field of capital markets and capital market theory focuses

on the study of the financial system, the structure of interest
rates, and the pricing of risky assets.
 FINANCIAL SYSTEM
Financial system consists of entities that help facilitate
the flow of funds from those that have funds to invest to
those who need funds to invest.

For every financial instrument, there is a minimum of two

parties. The party that has agreed to make future cash
payments is the issuer; the party that owns the financial
instrument and therefore the right to receive the payments
made by the issuer is the investor.
ROLE OF FINANCIAL
INTERMEDIARY
 TYPES OF FINANCIAL
MARKETS

Financial
Market

Internal External

Domestic Foreign
 MONEY MARKET
The money market is the sector of the
financial market that includes financial
instruments with a maturity or redemption
date one year or less at the time of issuance.
 CAPITAL MARKET
• The capital market is the sector of the financial market
where long-term financial instruments issued by
corporations and governments trade.

• “long-term” refers to a financial instrument with an

original maturity greater than one year and perpetual
securities (those with no maturity).
 REGULATING FINANCIAL
MARKETS
Most governments throughout the world regulate various
aspects of financial activities because they recognize the vital
role played by a country’s financial system. Regulation takes one
of four forms:
1. Disclosure regulation.
2. Financial activity regulation.
3. Regulation of financial institutions.
4. Regulation of foreign participants.
 INVESTMENT
MANAGEMENT
• Investment management is the specialty area within
finance dealing with the management of individual or
institutional funds.
• Other terms commonly used to describe this area of
finance are asset management, portfolio management,
money management, and wealth management.
 REFERENCE
• The basics of finance by: PAMELA PETERSON &
DRAKE FRANK J. FABOZZI

• Principles of Managerial Finance by: Lawrence J

Gitman