What is Finance

Finance is the discipline of economics that studies the processes by which individuals, businesses, agencies, organizations and states manage monetary flows (collection, allocation and use) over time. As the economy defined as “the science that studies how to allocate limited resources among alternative uses in order to maximize their satisfaction”, like the finance you can self-define as “the science that studies how the allocation of money between alternative uses in order to maximize their satisfaction. ‘”the financial system is therefore part of the economic system.

In economics, investment means for the financial activity of an economic entity capable for that investor to the increase of capital goods and the acquisition or creation of new resources to be used in the production process with the ultimate goal of obtaining a greater future profit or increase in personal satisfaction.

Typical characteristics of an investment are the use of an initial capital to achieve the final objectives, obtained in turn by using their savings or credit applications (loan) with credit institutions (banks), the recovery time of the initial capital (payback period), gain, efficiency and the associated risk of failure or the failure to achieve partial or total financial goals initially proposed. This may relate to a business entity as part of its business activities, both in the broad sense as a private citizen in increasing its quality of life.

Private companies and the public sector investment needed to purchase or produce on their own (in corporate terminology is called “economics”) capital goods materials such as plant, machinery, buildings, intangible assets, such as research or advertising campaigns, resources use in the production process, such as raw materials and finally finished goods inventory. Then there are investments that do not fall within the financial statements of a private company, but, when required, in the social budget, such as investment in staff training or in production systems to produce less polution. In this case we speak of investing in a broad sense, since the corresponding costs fall in current expenditure.

In corporate finance business it considers the investment from the point of view of capital it requires, the cost of the various sources of capital, the choices between different amortization schedules of the debts to make the investment and between different investments that generate cash differently.

Macroeconomics considers the investment as a component of aggregate demand and the multiplier effect of the product it produces. The political economy takes into account two types of investment function.