Find out what finance majors actually learn and if the skills they acquire are worth the investment of time and money.
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The basics of finance
The basics of finance involve the study of financial systems, financial instruments and markets. Financial systems are the structures through which money flows within an economy from one party to another. Financial instruments are thevehicles through which those money flows take place, such as stocks, bonds and loans. Financial markets are the arena in which financial instruments are traded.
Finance majors learn about all of these topics, as well as microeconomics (the study of individual economic actors) and macroeconomics (the study of entire economies). They also learn about financial accounting, financial statement analysis and corporate finance (the raising of capital to fund business operations).
The role of finance in businesses
Businesses need finance majors to understand financial statements and ratios, budgeting, and investment analysis. Financial analysts, controllers, and treasurers are some of the most common finance jobs. However, with the recent financial crisis, there has been an increased demand for financial regulation compliance officers.
The different types of financial instruments
A finance degree program typically provides students with a solid foundation in the major financial instruments and how they are used in the marketplace. Different types of financial instruments include stocks, bonds, options, futures, and currencies. Students in a finance degree program will learn about the different characteristics of each type of instrument and how they are used in different situations. In addition, students will also learn about the financial markets, including the stock market and the bond market.
The different types of financial markets
There are four main types of financial markets:
-The primary market is where corporations and other legal entities raise capital by selling securities to investors. This is also where the government sells debt. New securities are sold in the primary market.
-The secondary market is where securities are traded after they are initially sold in the primary market. The New York Stock Exchange (NYSE) and Nasdaq Stock Market are examples of a secondary market.
-The tertiary market is a quasi-secondary market that facilitates the trading of certain types of securities that may not be easily traded in the secondary market. For example, private company stock or certain types of real estate investment trusts (REITs) may trade in the tertiary market.
-The over-the-counter (OTC) market is not a physical exchange like the NYSE or Nasdaq, but rather a network of dealers who trade with one another over the phone or electronically.
The different types of financial institutions
There are four main types of financial institutions: banks, insurance companies, investment banks, and publicly traded companies.
Banks are the most regulated of the four types of financial institutions. They take deposits from customers and use those deposits to make loans. Banks are subject to reserve requirements, which dictate how much money they have to set aside in reserves, and they are also subject to reserve ratios, which dictate how much money they can lend out relative to their deposits.
Insurance companies collect premiums from policyholders and use those premiums to pay claims. Insurance companies are regulated by state insurance commissions, which set minimum capital requirements and oversee the solvency of insurance companies.
Investment banks underwrite securities and provide other financial services to corporations and governments. Investment banks are not subject to the same regulations as banks, but they are subject to regulation by the Securities and Exchange Commission (SEC).
Publicly traded companies raise capital by selling securities such as stocks and bonds. Publicly traded companies are subject to regulation by the SEC.
The different types of financial regulations
There are different types of financial regulations, each with its own purpose. The most common types of regulations are:
-Monetary policy: Monetary policy is the regulation of the money supply and interest rates by a central bank, such as the Federal Reserve. The goals of monetary policy are to stabilize prices and promote economic growth.
-Banking regulation: Banking regulation is the supervision and rules that govern the activities of banks. Banking regulations are designed to protect consumers and promote stability in the financial system.
-Securities regulation: Securities regulation is the supervision and rules that govern the sale of securities, such as stocks and bonds. Securities regulations are designed to protect investors and promote fair and orderly markets.
The different types of financial risks
There are four different types of financial risks that a finance major will learn about: market risk, credit risk, liquidity risk, and interest rate risk.
Market risk is the risk of loss due to changes in the market. This can be caused by changes in the stock market, changes in interest rates, or even changes in the global economy.
Credit risk is the risk of loss due to default on a loan. This can happen if a borrower does not make their payments on time, or if they default on the loan altogether.
Liquidity risk is the risk of loss due to a lack of liquidity. This can happen if a company does not have enough cash on hand to pay its debts when they come due.
Interest rate risk is the risk of loss due to changes in interest rates. This can happen if a company has borrowed money at a fixed interest rate, and then interest rates rise.
The different types of financial analysis
There are many different types of financial analysis, but the three most common are fundamental analysis, technical analysis, and quantitative analysis.
Fundamental analysis is focused on economic indicators and company financial statements in order to identify opportunities and assess risks. Technical analysis relies on chart patterns and price trends to predict future movements in asset prices. Quantitative analysis uses mathematical models to identify trading opportunities and measure risk.
Finance majors learn about all three types of financial analysis, as well as other topics such as corporate finance, investments, and risk management. With this knowledge, they can work in a variety of roles within the financial sector, including positions in investment banking, asset management, commercial banking, insurance, and more.
The different types of financial planning
There are many different types of financial planning, but the most common ones are retirement planning, investment planning, and estate planning. Retirement planning is when you save for retirement and invest for retirement. Investment planning is when you plan how to Invest your money so that it grows over time. Estate planning is when you plan how to distribute your assets after you die.
The different types of financial decision-making
There are three primary types of financial decision-making:
1. Personal finance: This refers to the financial decisions made by individuals. It includes budgeting, saving, investing, and managing debt.
2. Business finance: This refers to the financial decisions made by businesses. It includes things like deciding how to raise capital, managing cash flow, and making investment decisions.
3. Public finance: This refers to the financial decisions made by governments. It includes things like deciding how to allocate resources and manage tax revenue.