Finance, branch of economics concerned with providing funds to individuals, businesses, and governments. Finance allows these entities to use credit instead of cash to purchase goods and invest in projects. For example, an individual can borrow money from a bank to buy a home. An industrial firm can raise money through investors to build a new factory. Governments can issue bonds to raise money for projects.
Finance plays an important role in the economy. As banks, credit unions, and other financial institutions provide credit, they help expand the economy by directing funds from savers to borrowers. For example, a bank acquires large amounts of money from the deposits of individual savers. The bank does not let this money sit idle but instead provides loans to borrowers who might then build a house or expand a business. The savings of millions of people percolate through many financial institutions, spurring economic growth.
A wide variety of financial institutions have different roles in finance and the economy. Some institutions, such as banks, link lenders and borrowers. These institutions act as an intermediary among consumers, businesses, and governments by lending out deposits. Other institutions, such as stock exchanges, provide a market for existing securities, which include stocks and bonds. Stock exchanges encourage investment because they enable investors to sell their securities when the need arises.
Many aspects of finance are studied individually. Corporate finance centers on how businesses can best raise and spend their funds. Public finance focuses on the financial role of federal, state, and local governments.
Source : Microsoft ® Encarta ® 2006.
