Updated on Wednesday 27 February 2013
You might think of finance as making good use of money. Some people need to borrow, and others can lend to them. Governments, companies and individuals of all kinds are involved in different parts of the finance chain, and it all works together to make everyday life transactions possible.
What is finance? The term Finance essentially refers to the allocation of resources. Today, people might most commonly think of finance as money management, but let's take it back a step further.
The word “finance” has its roots in Old French dating from around 1350 (about the time when European markets began to use money more heavily for trade instead of bartering), connected to the idea of “finishing” or settling a debt by making a payment. To have the financial means for something, is to have the ability to finish or settle the matter (like, for instance, an international student financing their degree). Finance in the sense of "managing money" was first recorded in English in 1770. Money was created as a tool that made trading less complicated between people with very different resources and needs, that didn't always match up.
Put simply, there are two kinds of people in this world - those who don't have enough money (or resources), and those who have too much of it. People who have earned finance degrees are trained to connect those two groups - usually through banks, so that the one can borrow the other's resources, and pay it back with a little interest. The borrower is happy because they can use the extra resources to pay for their house, business or education. The person whose money gets borrowed is happy because the bank gives them some of the interest paid back by the borrower. So basically, finance is an intermediary - a means by which individuals, companies, and governments and other groups facilitate activity and transactions in the marketplace.
This intermediary function of finance takes on some very complicated functions when you follow it up to the municipal, national and international levels. Governments and large companies require large amounts of money, recorded and allocated very precisely to function well. People with finance degrees call this the credit and tax system.
Any time a sum of money (or capital assets) are re-allocated from one place to another, that is finance . To finance is “to provide or obtain funds, capital or credit for” or “to manage or secure financial resources.” This requires lots of different kinds of finance professionals. It is these people who keep track of where all the money goes and in some cases make sure the right amount of taxes is paid. Financial professionals also make sure that the tax money collected by the government is spent wisely. They are also those who manage specific funds of money to make sure it's all being used well, and to find new opportunities to use it better (meaning gain higher interest payments from borrowers). And there are many more career tracks. A finance degree can open the door for international students to any part of this career field.
Financial systems can be understood by international students in relatively simple terms, and are relatively easily accessible for most people to participate in simple ways. But the wider you search to try to really understand what is broadly going on, the more you'll realize that no financial system is independent. Historically (and currently) most leaders of the financial sector keep a close watch on what is happening in the financial markets in Europe, because that action tends to drive and direct most of the global financial system. What one person, company or nation does with their finances can be understood in individual terms, but not completely. The question “what is finance?” is very global and cannot properly be understood without an awareness of the entire system.
Finance is a practical facilitator, connecting people who want to borrow with people who want to lend. It involves millions of different kinds of transactions and players, who, although acting individually, are really inseparably connected in a global financial system.