Finance is the science of managing money. It is the function in a business responsible for acquiring funds for the firm and managing funds within the firm (preparing budgets, doing cash flow analyses) and planning for the expenditure of funds on such assets as plant, equipment, and machinery. Finance is the field of study that best integrates the other disciplines in the business course. Like accounting, finance deals with value and the monetary resources of the organization; like marketing, finance deals with managing and planning for the future; like economics, finance is based on the theory of rational decision-making; like management science, finance relies on highly structured models and methods; and like management, finance is concerned with making decisions in some form of a human organization. This central position of finance in relation to the other business disciplines gives the finance student the opportunity to gain some useful knowledge of those disciplines regardless of the student’s background or career plans.
Opportunities in Finance.
Finance consists of three interrelated areas: (1) money and capital markets, which deals with securities markets and financial institutions; (2) investments, which focuses on the decisions of both individual and institutional investors as they choose securities for their investment portfolios; and (3) financial management, or «business finance», which involves the actual management of firms.
The career opportunities within each field are many and varied, but financial managers must have knowledge of all three areas if they are to do their jobs well.
Money and Capital Markets.
Many finance graduates go to work for financial institutions, including banks, insurance companies, mutual funds, and investment banking firms. They need knowledge of valuation techniques, the factors that cause interest rates to rise and fall, the regulations to which financial institutions are subject, and the various types of financial instruments (mortgages, auto loans, certificates of deposit, and so on). One also needs general knowledge of all aspects of business administration, because the management of a financial institution involves accounting, marketing, personnel, and computer systems, as well as financial management. One common entry-level job in this area is a bank officer trainee, where you go into bank operations and learn about the business, from tellers’ work, to cash management and making loans. Alternatively, you might become a specialist in some area such as real estate, and be authorized to make loans or in the management of trusts, estates, and pension funds. Similar career paths are available with insurance companies, investment companies, credit unions, and consumer loan companies.
Finance graduates who go into investments often work for a brokerage house either in sales or as a security analyst. Others work for banks, mutual funds, or insurance companies in the management of their investment portfolios; for financial consulting firms which advise individual investors or pension funds on how to invest their funds; or for an investment banker whose primary function is to help businesses raise new capital. The three main functions in the investments area are (1) sales, (2) the analysis of individual securities, and (3) determining the optimal mix of securities for a given investor.
Financial management is the broadest of the three areas, and the one with the greatest number of job opportunities. Financial management is important in all types of businesses, including banks and other financial institutions, as well as industrial and retail firms. Financial management is also important in governmental operations, from schools to hospitals. Financial managers have the responsibility for deciding the credit terms under which customers may buy, how much inventory the firm should carry, how much cash to keep on hand, and how much of the firm’s earnings should go back into the business or pay out as dividends.