Finance is an overall term for all matters concerning the science, development, and management of funds and investments. It includes the science of banking, interest, economics, investment, palletization, insurance, and related fields. In its broad sense finance can refer to any of the applied areas of business concern with regard to finance as reflected in the work of economists, accountants, and other qualified professionals in these fields.
The broad field of finance is complex, involving many discrete areas of specialized knowledge such as: international accounting, corporate finance, mergers and acquisitions, personal and business financing, public finance, and other related areas. Although virtually everyone knows the general terms of economics, very few have strong mathematical or soft skills, especially when it comes to dealing with finance. Therefore, it is important for prospective students to develop their own aptitudes early in their careers in order to meet their career goals. For example, to achieve success as an independent financial consultant or investment banker, one must be able to use financial reporting and accounting software, understand investment banking and portfolio theory, and understand the workings of corporate and government agencies.
One of the main areas of finance that requires strong mathematical skills is the area of interest rates, the time value of money, and banking products such as loans, securities, derivatives, and the credit market. Because banks rely on information about current and future short-term debt and assets they must be efficient at forecasting future economic activity. In addition, it is crucial for banking to be able to calculate risk. Thus, those who have developed strong mathematical skills in other academic subjects may be well placed in the financial departments of commercial banks.
Many people have a strong interest and aptitude for business, but are less gifted in the area of finance. For this reason, many organizations place a major emphasis on professional training and development for managers who will take charge of corporate finance. A strong combination of theoretical knowledge with on the job experience is necessary if you are going to be successful at handling the complex issues of corporate finance. Some of the most important concepts you should learn include portfolio theory, asset allocation theory, multiple regression analysis, financial modeling, decision trees and tree based modeling, financial planning, and the balance sheet framework. There are also important related concepts that you should master such as risk management, liquidity management, internal control measures, internal and external financing, economic risk, venture capital, and the lender’s burden.
All finance professionals must be familiar with and be able to effectively manage investment funds. They must be good at short-term asset allocation (managing funds to meet short-term goals), long-term asset allocation (managing funds over long-term periods), and portfolio balancing (balancing multiple portfolios to assure financial stability). Good fund managers must also be good at identifying opportunities for investment, developing effective investment strategies, and finding ways to protect funds from unexpected losses. Fund managers often work with a small number of investment professionals to spread the risk of investment across a large number of different projects. Managing investment funds can be a complex process.
The internal controls of an organization must be efficient and well-designed in order to ensure that the objectives of the organization are effectively and consistently met. In addition, a well-designed internal control system is necessary to comply with all of the legal and regulatory requirements for operating a business. Internal control systems for finance are especially complex because of the many aspects that must be considered. While most organizations have an internal control system for finances, very few have a comprehensive system that not only oversees operations, but also includes an understanding of investment risks and opportunities. Many organizations fail to recognize and respond to investment risks in their financial portfolio resulting in costly financial losses.
Finance professionals are important to nearly every industry in the United States. They include bankers, loan officers, stockbrokers, insurance underwriters, commodity brokers, fiscal agents, investment managers, and other financial sector workers. Finance jobs are widely sought by qualified professionals in all areas of the financial sector, including private equity, venture capital, real estate finance, banking, and insurance. Because the finance industry is so important to the economy, many federal government positions are available in the financial sector including the following: Chief Procurement Officer, Chief Financial Officer, Assistant Secretary of the Treasury, and Senior Advisor to the Secretary of the Treasury.
Angel investors, wealthy individuals who provide start up capital for companies, play an important role in the public finance field. Typically, angel investors provide start up capital and/or receive small equity or a partial ownership interest in a company. They are responsible for providing a significant amount of funding to a company during its development stage and for providing regular reports on the company’s progress during this time. Angel investors have provided start up capital for many successful companies that later became very profitable, as well as being a major source of credit risk capital for many businesses.