intro to finance
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What is finance?
The science or study of the management of money
Why is finance considered a social science?
Finance like all social sciences is concerned with human behaviour
Why is uncertainty present in finance?
- Finance is concerned with human behaviour. Human behaviour is uncertain; hence, uncertainty exists in finance.
- Finance is also concerned with the future- as the future cannot be predicted, uncertainty exists
What is the difference between finance and economics?
- Economics is concerened with the allocation of scarce resources; finance is concerned with with the allocation of scarce resources over time.
- Economics focuses on exchanges in which money is one of the items traded whereas in finance, money appears on both sides of the trade
Identify and explain the 4 characteristics of financial transactions
- Time: money now is traded for money in the future
- Uncertainty: the amount and timing of money in the future is uncertain
- Options: in some contracts, a party can have the option to make a decision in the future that affects the subsequent transfer of money
- Information: info about the future can reduce uncertainty associated with the amount and timing of future monetary transfers
What are the benefits of studying finance?
- Ability to manage on finances
- operate in the world of business
- to pursue a career in finance
Identify and distinguish between the different areas of study in finance
- Investment finance: looks at finance from an individual investor's point of view
- Corporate: looks at finance from the company's point of view.
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