What is Finance?

Summary

Finance is the application of economic principles to decision-making that involves the allocation of money under conditions of uncertainty. Investors allocate their funds among financial assets in order to accomplish their objectives, and businesses raise funds by issuing claims against themselves and use the proceeds raised to invest in the company to increase profits. Governments raise funds to provide services for taxpayers and to build various infrastructure projects. Finance provides the framework for making decisions as to how those funds should be obtained and then invested. It is the financial system that provides the platform by which funds are transferred from those entities that have funds to invest to those entities that need funds to invest.