Finance is a broad term for various things about the study, development, management and distribution of funds and other financial investments. In particular, it deals mainly with questions of how and when an individual, business or government obtains the funds necessary to meet its objectives and goals-called capital in the business context. It also involves the decisions and actions that a government takes on issues of budgeting, allocation of public funds, management of economic stimulus packages, etc. The discipline also has various theories and concepts involved such as microeconomics, macroeconomics, investment theory, economic development, international trade, and entrepreneurship. The major components of finance are asset pricing, time pricing, capital pricing, portfolio theory, financial analysis and monetary theory.
Finance is also an important subfield of economics, but is not as closely related to it as some people think. For instance, while economics uses theory to explain how the economy functions, finance uses real world data to understand the behavior of real markets and firms. This makes a lot of difference in the models used to create financial theories and the methods by which they are tested in practice. For instance, in economic theory, time value of money is primarily based on the existence of a physical time horizon, whereas the models used to test it in practice depend largely on the ability of banks to extend credit. Finance, by contrast, is concerned mostly with the time value of money concept and its application to the behavior of specific economic firms.
Another important area of finance is banking, money management and the provision of financial services. The scope of this discipline is not only to analyze the risks associated with bank loans and other bank products, but also to understand the usefulness of banks for their customers. This is done by understanding both the need for banking and the ability of banks to provide it. Banking is basically an example of finance that involves the use of leverage or debt, government bonds, stocks or other assets as collateral for bank loans.