Finance and economics are industry-related academic courses, however their scope and focus differ greatly. Finance primarily includes the study of distribution, production and consumption of goods and Services. The concepts are used to create economic policies that will affect businesses, individuals and the wider community. Finance is important to business managers as it assists them in making business decisions and in preparing and maintaining financial statements.
There are four main theories of finance which are the theory of macroeconomics, the theory of technical economics, the economic theories, and the business cycle. The study of the history of finance is referred to as economic history. A part of finance is also known as micro-finance. The scope of modern business has increased considerably due to technological developments. These have provided businesses with increased efficiency and profitability. Learning about the financial aspects of the business will enable managers and owners to make better decisions for the benefit of the business.
The study of microeconomics deals with the movement of funds through markets. It is the study of economic activity as it occurs in the firms, such as the production, allocation and sale of products. The scope of this area of finance is much smaller than that of macroeconomics. This includes the analysis of retail sales, price levels and consumer spending habits. Microeconomics also includes a major part of the field of finance research.
The concepts of macroeconomics and microeconomics are closely related, however, their definitions and scope differ markedly. Macroeconomics refers to the wider range of issues affecting a country’s economy such as government finance, investment, public finance, international trade and monetary policy. On the other hand, microeconomics concentrates on the microlevel aspects of economic activity. It is essential for any student to be aware of these distinctions because they can have significant consequences to the research outcomes. Thus understanding both concepts is vital for a successful career in economics.
The study of finance is a subfield of economics that has become increasingly important in recent years. The scope of finance is quite diverse and includes asset pricing, personal finance, corporate finance, micro finance, financial markets and non-traditional finance. The modern study of finance is motivated by two broad concerns. First, the world economy is increasingly based on finance and the use of finance to affect output, prices and production; second, the economic policies of countries are affected by the externalities of finance.
Contemporary economics also incorporates the study of institutions, money and banking. The importance of institutions in the formal and real-world financial markets means that the study of economics is also called the psychology of banks. Economists have spent many years trying to explain why institutions do what they do and how they decide on their activities. They use a wide range of macroeconomic models as well as economic software to study banking institutions and the role they play in the economy.
Another important area of contemporary economics that influences output and prices is the world of private finance. Private finance is closely related to the world of corporate finance, though they are often treated as independent fields. Corporate finance refers to the strategies and techniques corporations use to acquire, manage, and utilise capital assets. Private finance refers to those practices employed by individuals that contribute to the economic activity of corporations and other organisations. It therefore involves a great deal of statistical knowledge about the economic system as a whole as well as specific areas such as personal finance and the management of public finance.
As well as studying the macroeconomics of the countries they are involved in, many economists also focus extensively on the microeconomics of a particular country or region. This is because they receive limited information from the national government about economic activity in that country. They rely on other sources such as local banks, financial markets, and even household income and spending patterns to form their views of how the local economy functions. As such, many microeconomic studies compare the performance of various governments over time, and attempt to discover what the implications of policy decisions are for the economy as a whole. Examples include the studies of interest rates, industrial production, investment, and unemployment rates.