Purpose of Finance
1. Allocation of Resources: Finance makes resource allocation easier by directing money towards the most beneficial applications. Choosing where to invest money in order to get the best returns is part of this.
2. Risk Control: Finance assists people and organizations in detecting, evaluating, and controlling risks. This covers methods for mitigating the effects of uncertainty and safeguarding against monetary losses.
3. Capital Formation: When it comes to capital formation, the process of gathering money for useful purposes, finance is a key component. Investments in technology, infrastructure, and other resources that support economic expansion can fall under this category.
4. Encouraging Transactions: The technology and infrastructure needed to support financial transactions are provided by the finance industry. This covers how payment systems, banking services, and financial markets function.
5. Money’s Time Value: The time value of money is recognized in finance, meaning that a sum of money now is worth more than the same amount in the future. Numerous financial concepts, including interest, discounting, and present value computations, are based on this idea.