What is Finance?

Finance is a science that deals with money, risk and time. To be more precise, it deals with how money deriving from various activities is spent.

The importance of such science lies in the fact that it greatly influences each country’s economy, defines business networks and can determine both failures and successes.
Just to make an example, a successful company that has a satisfactory turnover might easily lose everything it has by simply mis-investing its assets.

That is why we might define finance as the art of investing, because investing is not something you are taught in school, but a complex science that involves a number of factors, such as feelings, emotions (fear, enthusiasm, pessimism, optimism…), agreements, deals, economic facts, politics and so forth…

A good financial advisor knows that asset allocation plays an important role when it comes to investing, as diversification tends to reduce risk and maximize earnings. That is why most companies do not invest their own assets, but generally rely on prestigious investment banks, which manage their financial activities and advise them on the best strategies, keeping account of the world economy.

The battlefield of finance is the stock market, where individuals, companies and corporations trade everything: funds, bonds, stocks, commodities, goods and services.
Every developed and modern country has its own stock market, but, as you can well imagine, it is the most powerful countries that influence the world economy with their equity markets, such as Wall Street, London, Shanghai, Tokyo and Frankfurt.

However, finance is not simply determined by the aforementioned stock markets but by many other aspects, such as expectations, which is why finance is often referred to as a behavioral science.
The most important investment companies, in fact, do not simply have a vast knowledge of economics, but also of psychology and mass media-related mechanisms.
Mass media, intended as the array of media used to deliver news, is the information source investors and potential investors refer to before taking any decision. A political crisis, a terror attack, a flood or any other phenomenon might keep thousands of people from “daring”.

Not to forget, then, is the equally important role played by central banks, whose strategies and actions can either boost or slow down the world economy. Broadly speaking, when a central bank wants the economy to grow and the market to get more dynamic, it lowers interest rates so that more people can easily get mortgages, loans and other forms of credit at advantageous conditions.

What will these people use such “lent” money for? They will probably invest it in business-related activities and, so doing, they will indirectly cause the stock market to rise. But when it reaches a certain peak, central banks, driven by their experience, in-depth research and analyses, tend to get protected from upcoming drops, which is why they gradually increase interest rates causing the market to shrink.
International stock markets can perceive such changes either positively or negatively, depending on the current historical, economic and political situation.

Here is a piece of advice for those who are meditating on playing the market: gambling on the stock market is highly risky. There are many relevant companies, or maybe we should say “there were”, which thought it was a brilliant idea to play the market instead of investing their assets in bonds and other secure financial products. The result? Many of them have been bought out at surprisingly low prices.

So, to put it in simple words, finance is a very risky field that can give you a lot, but can also take a lot from you, leaving you no shoulder to cry on, especially if you play the market on your own.
Now you probably understand why most banks offer investment consultancy services and why there are so many financial services companies out there, which support their customers by advising them as to how to invest their money.

Needless to say that when it comes to money, honesty is a virtue that many leave aside. It is of the utmost importance that you find a broker and/or advisor who can really help you make the most out of your earnings, without requiring too high commissions.

In the matter of honesty, we should also mention transparency, as those piles of documents bank clerks and brokers hand to their customers are so high and complex that the naivest customers do not even want to read before signing. Well, that’s wrong, especially considering that many evil-minded brokers who take advantage of people’s lack of attention to have them sign counterproductive contracts.

To sum it up, stick to the golden rule: Keep your eyes open all the time and put your savings in safe hands.


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4 thoughts on “What is Finance?

  1. Finance is the art as money that how properly and effectively utilize in order to develop the future expectations.

  2. Really hard to define, it’s the root of everything, I think everybody should be a business man for a while and experience dealing with finance and money..thanks for the post

  3. Finance is the process of allocating surpluses into deficits or the other way round. For example; some times it happens that some parts of the ground are dry, sandy and dust, while some other parts are wet, muddy and moist.

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