what is financial market essay

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What is Financial Market

A financial market is a word that describes a marketplace where bonds, equity, securities, currencies are traded. Few financial markets do a security business of trillions of dollars daily, and some are small-scale with less activity. These are markets where businesses grow their cash, companies decrease risks, and investors make more cash.

Meaning of Financial Markets

A Financial Market is referred to space, where selling and buying of financial assets and securities take place. It allocates limited resources in the nation’s economy. It serves as an agent between the investors and collector by mobilising capital between them.

In a financial market, the stock market allows investors to purchase and trade publicly companies share. The issue of new stocks are first offered in the primary stock market, and stock securities trading happens in the secondary market .

Related link: What are the Financial Statements of a Company ?

Types of Financial Markets

• Over the Counter (OTC) Market – They manage public stock exchange, which is not listed on the NASDAQ, American Stock Exchange, and New York Stock Exchange. The OTC market dealing with companies are usually small companies that can be traded in cheap and has less regulation.
• Bond Market – A financial market is a place where investors loan money on bond as security for a set if time at a predefined rate of interest. Bonds are issued by corporations, states, municipalities, and federal governments across the world.
• Money Markets – They trade high liquid and short maturities, and lending of securities that matures in less than a year.
• Derivatives Market – They trades securities that determine its value from its primary asset. The derivative contract value is regulated by the market price of the primary item — the derivatives market securities, including futures, options, contracts-for-difference, forward contracts, and swaps.
• Forex Market – It is a financial market where investors trade in currencies. In the entire world, this is the most liquid financial market.

Functions of Financial Market

Mentioned below are the important functions of the financial market.

• It mobilises savings by trading it in the most productive methods.
• It assists in deciding the securities price by interaction with the investors and depending on the demand and supply in the market.
• It gives liquidity to bartered assets.
• Less time-consuming and cost-effective as parties don’t have to spend extra time and money to find potential clients to deal with securities. It also decreases cost by giving valuable information about the securities traded in the financial market.

Do you know:   What is Stock Exchange ?

Classification of Financial Market

The financial market can be classified into three different forms.

1.  By Nature of Claim

• Debt Market – It is a market where fixed bonds and debentures or bonds are exchanged between investors.
• Equity Market – It is a place for investors to deal with equity.

2. By Maturity of Claim

• Money Market – It deals with monetary assets and short-term funds such as a certificate of deposits, treasury bills, and commercial paper, etc. which mature within twelve months.  
• Capital Market –  It trades medium and long term financial assets.

3. By Timing of Delivery

• Cash Market –    It is a market place where trade is completed in real-time.
• Futures Market –   Here, the delivery or compensation of products are taken in the future specified date.

4. By Organizational Structure

• Exchange-Traded Market – It has a centralised system with a patterned procedure.
• Over-the-Counter Market – It has a decentralised organisation with customised procedures

Explore- Top 10 Difference between Money Market and Capital Market

What are Financial Markets and Institutions?

Financial markets dispense efficiently flow of investments and savings in the economy and facilitate the growth of funds for producing goods and services. The right blend of financial products and instruments and financial markets and institutions fuels the demands of investors, receiver and the overall economy of a country.

Financial markets (bonds and stocks), instruments (derivatives, bank CDs, and futures), and institutions (banks, pension funds, insurance companies, and mutual funds) give the investors the opportunities to specialize in specific services and markets. As quoted by Demirgcc-Kunt and Levine “Financial markets and financial institutions together contribute to economic growth and not the relative mix of these two factors”.

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An Introduction to the Financial Markets

Make Financial Markets Work for You

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

Types of Financial Markets

Functions of financial markets, frequently asked questions (faqs).

What are the financial markets? It can be confusing because they go by many terms. They include capital markets,  Wall Street , and even simply "the markets.” Whatever you call them, financial markets are where traders buy and sell assets. These include stocks, bonds, derivatives, foreign exchange, and commodities. The markets are where businesses go to raise cash to grow. It’s where companies reduce risks and investors make money.

• Financial markets create liquidity that allows businesses to grow and entrepreneurs to raise money for their ventures. 
• They reduce risk by having information publicly available to investors and traders. 
• These markets calm the economy by instilling confidence in investors. 
• Investor confidence stabilizes the economy.

Most people think about the stock market when talking about financial markets. They don't realize there are many kinds that accomplish different goals. Markets exchange a variety of products to help raise liquidity. Each market relies on each other to create confidence in investors. The interconnectedness of these markets means that when one suffers, other markets will react accordingly.

The Stock Market

This market is a series of exchanges where successful corporations go to raise large amounts of cash to expand. Stocks are forms of ownership of a public corporation that are sold to investors through broker-dealers. The investors profit when companies increase their earnings. This keeps the U.S. economy growing. It's easy to buy stocks , but it takes a lot of knowledge to buy stocks in the right company.

To a lot of people, the Dow is the stock market. The Dow is the nickname for the Dow Jones Industrial Average, which is just one way of tracking the performance of a particular group of stocks. There are also the Dow Jones Transportation Average and the Dow Jones Utilities Average. Many investors ignore the Dow and instead focus on the Standard & Poor's 500 index or other indices to track the progress of the stock market. The stocks that make up these averages are traded on the world's stock exchanges, two of which are the New York Stock Exchange (NYSE) and the Nasdaq.

The market depends on the perceptions, actions, and decisions of both buyers and sellers concerning the profitability of the companies being traded.

Mutual funds give you the ability to buy a lot of stocks at once. In a way, this makes them an easier tool to invest in than individual stocks. By reducing stock market volatility, they have also had a calming effect on the U.S. economy. Despite their benefits, you still need to learn  how to select a good mutual fund .

The Bond Market

When organizations need to obtain very large loans, they go to the bond market. When stock prices go up, bond prices tend to go down. There are many different  types of bonds , including Treasury Bonds, corporate bonds, and municipal bonds. Bonds also provide some of the liquidity that keeps the U.S. economy functioning smoothly.

It's important to understand the relationship between Treasury bonds and Treasury bond yields. When Treasury bond values go down, the yields go up to compensate. When Treasury yields rise, so do mortgage interest rates. Even worse, when Treasury values decline, so does the value of the dollar. That makes import prices rise, which can trigger inflation.

Treasury yields can also predict the future. For example, an inverted yield curve heralds a recession.

The Commodities Market

A commodity market is where companies offset their futures risks when buying or selling natural resources. Since the prices of things like oil, corn, and gold are so volatile, companies can lock in a known price today. Since these exchanges are public, many investors also trade in commodities for profit only. For example, most investors have no intention of taking shipments of large quantities of pork bellies.

Oil is the most important commodity in the U.S. economy. It is used for transportation, industrial products, plastics, heating, and electricity generation. When oil prices rise, you'll see the effect in gas prices about a week later. If oil and gas prices stay high, you'll see the impact on food prices in about six weeks. The  commodities futures  market determines the price of oil.

Futures are a way to pay for something today that is delivered tomorrow. They increase a trader's leverage by allowing him or her to borrow the money to purchase the commodity.

The futures market removes some of the volatility in the U.S. economy. It allows businesses to control the future costs of the critical commodities they use every day.

Leverage can create outsize gains if traders guess right. It also magnifies the losses if traders guess wrong. If enough traders guess wrong, it can have a huge impact on the U.S. economy, actually increasing overall volatility. 

Another important commodity is gold. It's bought as a hedge against inflation. Gold prices also go up when there is a lot of economic uncertainty in the world. In the past, every dollar could be traded in for its value in gold. When the U.S. went off the gold standard, it lost this relationship to money. Still, many people look at gold as a safer alternative to cash or currency.

Derivatives 

Derivatives are complicated financial products that base their value on underlying assets. Sophisticated investors and hedge funds use them to magnify their potential gains. In 2007, hedge funds increased in popularity due to their supposed higher returns for high-end investors. Since hedge funds invest heavily in futures, some argued they decreased the volatility of the stock market and, therefore, the U.S. economy. The hedge fund investments in subprime mortgages and other derivatives caused the 2008 global financial crisis.

Even before this, hedge funds had demonstrated their risky nature. In 1997, the world's largest hedge fund at the time,  Long Term Capital Management , practically brought down the U.S. economy.

Forex Trading

Forex trading is a decentralized global market in which currencies are bought and sold. About $6.6 trillion were traded per day in April 2019, and 88% involved the U.S. dollar. Almost one-fourth of the trades are done by banks for their customers to reduce the volatility of doing business overseas. Hedge funds are responsible for another 11%, and some of it is speculative.

This market affects exchange rates and, thus, the value of the dollar and other currencies. Exchange rates work on the basis of demand and supply of a nation’s currency, as well as of that nation’s economic and financial stability.

Financial markets create an open and regulated system for companies to acquire large amounts of capital. This is done through the stock and bond markets. Markets also allow these businesses to offset risk. They do this with commodities, foreign exchange futures contracts, and other derivatives.

Since the markets are public, they provide an open and transparent way to set prices on everything traded. They reflect all available knowledge about everything traded, reducing the cost of obtaining information because it's already incorporated into the price.

The sheer size of the financial markets provides liquidity. In other words, sellers can unload assets whenever they need to raise cash. The size also reduces the cost of doing business. Companies don't have to go far to find a buyer or someone willing to sell.

When does inside information have the least value in a financial market?

The efficient market hypothesis (EMH) is an economic theory stating that the stock market efficiently finds the correct price for securities based on all available information. There are variations on this theory, and strong-form EMH holds that even insider information is considered "available information" in terms of market pricing. That means it doesn't have financial value to insiders—the information has already been priced into the stock.

What kind of financial assets are sold on secondary markets?

Except for the forex market, all of the markets listed above are secondary markets . A secondary market is simply an exchange where securities and other assets are sold after their original issue. For example, after a bond auction, bondholders can go to the secondary market and sell the bonds they bought at auction.

Office of Investor Education and Advocacy. " Bonds ."

Securities and Exchange Commission. " Interest Rate Risk: When Interest Rates Go Up, Prices of Fixed-rate Bonds Fall ."

Office of Investor Education and Advocacy. " Commodities ."

Federal Reserve Bank of St. Louis. " Do Rises in Oil Prices Mean Rises in Food Prices? "

Office of Investor Education and Advocacy. " Derivatives ."

BIS. " Turnover of OTC Foreign Exchange Instruments ."

Iowa State University. " Introductory Notes on Financial Markets ."

New York University Stern School of Business. " Foundations of Finance: Market Efficiency ," Pages 3-7.

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What are financial markets and why are they important?

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What are financial markets?

Think of companies like eBay, which match buyers and sellers to set a price for everything from second-hand furniture to the latest iPhone.

Financial markets match buyers and sellers to set a price for financial assets.

What are the "financial assets" that are exchanged in the financial markets?

Having shares in a company means you own part of it. Companies create shares to raise money so they can invest and grow.

Governments or large companies can raise money by issuing bonds. These are essentially a future ‘IOU’ that can be bought and sold in the financial markets. Government bonds also known as ‘gilts’ and are a form of government debt.

People can exchange one currency for another in the foreign exchange markets.

How do financial markets help me?

Financial markets can give an opportunity for you to invest money in shares (also known as equities) to build up money for the future.

Over a long period of time, this can often provide a better return than opening a savings account at your bank. But  buying shares can be risky . It is important to remember that the value of any investment can go down as well as up, and getting good returns in the past does not always mean they’ll be good in the future.

Financial markets also allow people to take out insurance . Insurance companies need to use financial markets to make sure you will receive a pay-out if you have an accident, such as losing or damaging your mobile phone.

Financial markets enable lenders such as  banks  to borrow money. They make loans to people who want to borrow – whether that’s attending university with a student loan, say, or buying a house with a mortgage.

Why do financial markets matter?

Bank of England's explainer on what are financial markets and why are they important.

Video transcript - Why do financial markets matter?

How do financial markets help businesses.

Financial markets provide finance for companies so they can hire, invest and grow.

For example, Apple started in a garage in California. While it had some great ideas, it needed money to make them happen.

In 1977, it persuaded a single investor to loan the company $250,000. Over time, the company grew and less than five years later it was able to borrow over $100 million from financial markets by selling shares in the company.

Apple is now worth hundreds of billions of dollars and employs over 100,000 people.

So, when they work well, financial markets can make the country much better off.

What is the Bank of England's role in the financial markets?

As the Global Financial Crisis that began in 2007  showed, when markets go wrong they can cause a lot of harm.

At that time, markets proved to be fragile. This fragility spread to the wider economy. Banks were less willing and less able to provide loans to households and companies. This meant lower economic activity  and more people out of work.

That’s why it’s important we make sure financial markets operate in a safe way.

We do that in more than one way.

We collect information about financial markets. It’s vital we talk to people working in financial markets so we understand what’s happening, what the risks are and consider how to address them together.

We manage some key financial market operations. This includes buying and selling things owned by the government to change the amount of money available in the economy. A few examples of this are quantitative easing , printing money  and managing the UK’s gold  and money reserves (our country’s investments) on behalf of the government. We also hold a small number of foreign currency reserves, and carry out payments to other countries for government departments and a small number of their customers.

We set standards for financial firms so they keep providing services when you need them.

Find out more

• What do banks do?
• What does insurance cover?
• What does the Bank of England do?
• Will there be another financial crisis?

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Functions of financial markets Essay

The financial market provides investors with money that is earned through borrowing from financial institutions. The market provides them with access to foreign exchange in the foreign markets where they are able to exchange different currencies. Finally, it provides a means for the acquisition of desired commodities through the normal buying and selling which is provided as a service by financial institutions especially the banks in the financial market (Copeland & Weston, 1988).

A financial market enables individuals to be able to access; derivatives, futures and capital. This are achieved through co-operation between the buyers and sellers. The buyers are the traders and investors while the sellers are represented by financial institutions and systems such as banks, foreign market and the stock market taking part in the financial market (Pilbeam, 2010).

The basics functions of the financial markets are; it enables traders to access insurance facilities for their businesses , it provides them with the opportunity to purchase commodities they desire using the different financial institutions as the intermediaries for carrying out the transactions and finally, it provides investors with money for financing their business either through lending or basically assets financing (Valdez, 2006).

Islamic Finance

This is a banking system that adheres to the basic laws of Islam and its principles that relate to money and finance. The system is built on the basic laws and principle of Islam known as Sharia law (Saeed, 1996).

Importance and effects on the financial markets

Islamic finance is usually against the charging of interest on money saved or borrowed. This principle is so strict according to the sharia law that even Islam’s have their own banking institutions that adhere to this law. The effect of this law is very important to parties such as banking, credit and microfinance institutions. They are to apply this when dealing with Islamic clients as they cannot lend with interest hence it is relevant for the institutions to come up with other avenues of revenue apart from interests.

This financial system is against the participation of Islam’s in various businesses that are not allowed by the Sharia law. Such businesses that are not allowed are; running alcoholic stores and participating in the pornographic industry.

This law is very effective as it deters financial institutions that operate in such countries that follow sharia law from financing start-ups in these businesses. It is also enables the financial market participants avoid transacting business with such persons who are intending or already operating these unlawful businesses (Saeed, 1996).

Prohibition of investments in uncertain transactions and contracts are a pillar of this system. This fact limits the different participants in the financial markets such as banks from offering bonds to companies that may be involved in such uncertain contracts.

The idea where investors take part in business due to speculative purposes is also prohibited in this system. Speculation is usually applied in the stock markets where investors and stock brokers buy and sell stocks in the expectation of a rise in the sell prices. This type of investment is not allowed under the Islamic finance system and thus its effect in the stock market is immense as it may prevent investors who are Muslim from participating in the same. This reduces the amount in the stock market (Saeed, 1996).

Islamic finance does not support gambling in any way. Most casinos that are usually the places for gambling tend to participate in the stock exchange and bank in financial institutions such as banks. Thus, the effect of such would mean the participants in the financial market cannot support such business in whatever manner.

Copeland, T. & Weston, F. (1988). Financial Theory and Corporate Policy . Massachusetts: Addison-Wesley.

Pilbeam, K. (2010). Finance and Financial Markets . Canada: Palgrave.

Saeed, A. (1996). Islamic Banking and Interest. Leiden: E.J.Brill.

Valdez, S. (2006). An Introduction To Global Financial Markets , London: Macmillan.

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IvyPanda. (2018, December 27). Functions of financial markets. https://ivypanda.com/essays/functions-of-financial-markets/

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Financial Markets and Functions

Checked : Iris E. , Curtis H.

Latest Update 20 Jan, 2024

12 min read

Table of content

The Role of Financial Market and Institutions

Major players, investment banks, intermediaries, types of financial market structures, auction markets, over-the-counter markets, intermediation financial markets.

Many traditional economies failed because they did not allow financial markets to work. But talk about financial markets, it is vital to talk about the financial system. The financial systems operate as economic boosters as it stimulates the economy. It influences the economic performance of different actors while affecting economic welfare. It works through financial infrastructure where the player with fund allocates the funds to individuals who can invest the funds. A financial system ensures a more efficient and easy way for funds transfer. It can also give rise to asymmetry problems and poor assigning of resources since one entity in a financial transaction may have much superior information but the other.

The structural approach suggests that there are three main components of the financial system: Financial markets, financial intermediaries, and; financial regulations. Each has a certain part to play in an economy. The financial markets, which are our focus in the article, act as facilitators of the flow of financial resources in financing investments in different entities. They serve corporations, governments, and individuals with financial institutions as the key players. Financial regulations are simple rules that govern participants in the financial system.

Financial market studies have become an important part of the modern economy. They are based on the capital market theory with a focus on financial systems in which interest rates and pricing of financial services is the main center of discussion. And before students are introduced to the subject, they must learn the most basic terms commonly used by economists in the financial industry. They include the following:

• Asset - And asset is anything that carries durable value. In other words, it is any item that stands as a means to store value over a long time. There are different types of assets:
• Real assets - These are tangible assets, like land, equipment, houses, and animals. It also includes human capital like natural abilities, learned skills, and knowledge.
• Financial assets - As the name suggests, these are valuables stored in terms of money. They are claims against real assets, directly as in-stock share equity, or indirectly as in money holdings.
• Securities - These are financial assets one can exchange in an auction or over-the-counter markets. They are distributed based on legal requirements and expectations as per the laws of a nation.
• Lenders - These are individuals who have available resources in terms of money, above their possible expenditures, which they can loan out. The opposite is borrowers; individuals who have a shortage of funds required to meet their expenditures; hence, they need the loan. Borrowers try to borrow funds through the sale of claims against their real assets to the lender.
• Financial markets - This is simply the market that controls the trading of financial assets. There are places where lenders meet borrowers, just like real markets where a producer of goods meet consumers. Hence financial market facilitates and controls borrowing and lending by initiating the sale by newly issued financial assets. They include markets like the New York Stock Exchange, the U. S government bond market, and the U.S. Treasury bill auction. And we have already talked about financial institutions, which are physical institutions that profit primary through financial transactions.

As stated above, these are players in the financial industry that control monetary transactions. They control borrowing and lending as they allow the transfer of funds from one party to another. In other words, they give purchasing power to different agents involved in the transaction. This happens to facilitate either investment or consumption.

Financial institutions and markets are responsible for setting prices. They are the instruments through which players set prices for both newly issued financial assets and for the current stock of monetary valuables.

They form the link for information aggregation and coordination. If there is, for instance, changes in the price of a certain asset, the involved party must send or receive the information through these markets. They play as collectors and initiators of information about financial asset values and cash flow from lenders and borrowers. In other words, they can either prove or disapprove information about a specific asset.

Financial institutions also control risk sharing. They take charge of risk transfer from those who invest in those who offer the funds to facilitate those investments. This means they are responsible for shielding lenders against potential loss of their money by ensuring borrowers are held accountable for their actions.

Also, financial markets are responsible for the liquidity of assets. When borrowers, for instance, fail to honor their loans, financial assets holders can resell or liquidate the assets to recover their   investments. They also protect borrowers from unlawful use of their assets by lenders.

Financial markets are also in charge of controlling transaction costs. By reducing transaction costs and information costs, they ensure efficiency in the industry.

Though the roles discussed are tied to the operations of financial markets, they are not all handled by one sector. There are different categories of financial institutions that work together to create a harmonious system of operation. And one must learn these players when trying to characterize the operation of financial markets. All these participants have various ways of fitting into the structure of the markets.

Many economists look at financial institutions as bodies that take part in financial markets. This means they are responsible for the creation and exchange of financial assets. Without the, we would not even be talking about financial institutions.

There are different categories of financial institutions in different parts of the world. The following form the most common players:

When a buyer wants to acquire an asset from the seller, they may not be able to do directly. They need a middleman, someone who will help in the smooth completion of the transaction process, and a broker is that mediator. A broker is described as a commissioned agent or a buyer or a seller, who ensures trade by identifying the seller or a buyer, for the completion of the process.

A broker cannot have any position in the assets they trade. They don’t have any inventories in the assets. All they do is facilitate a meeting between the right buyer and the right seller, and vise versa. Brokers get their profits based on the commission they charge users of their services. An excellent example of a broker is the real estate of a stockbroker.

Dealers are more or less, just like brokers. They take charge of facilitating trade, whereby they find buyers and match then with asset sellers. They don’t take any part in the transformation of the assets. They only difference is that a dealer can and does ‘take position’ in the assets they trade. This means they maintain inventories in these assets because they are allowed to sell out inventory rather than only locating and matching buyers with sellers. In simple terms, a dealer holds the actual asset, and they can sell directly on behalf of the seller.

Also, dealers do not profit by charging commissions for the service they offer. Instead, they buy the asset at a relatively lower price, increase the cost and then resell and the new price. The profit comes as the current price less than the original price. This difference is called ‘bid-ask spread,’ and it represents the profit margin for the asset in question. Examples of dealers include car dealers, dealers in the U.S. government bonds, among others.

Investment banks play a vital role in ensuring proper control of assets. They help in the initial sale of securities that have been newly issued (Initial Public Offerings, IPOs), by handling several services:

• They advise corporations on bonds offering. They answer the questions of whether or not the bonds or stock should be issued. They also advise on bond issues on specific types of payments for the securities they provide.
• They stand in as guarantors for corporations’ prices on the products they provide. This means they handle underwriting, of either individual or by incorporating various investment banks. They create a syndical to underwrite the problem together,
• Investment banks work as sales assistances, where they help in the sale of securities to the public.

The top investment banks in the U.S. include Morgan Stanley, Salomon Brothers, among many others.

Financial intermediaries   take part in the transformation of financial assets. And this is the major difference that makes them unique from brokers, dealers, and investment banks. In a nutshell, they can purchase a specific type of financial asset from a borrower, for instance, a long-term loan contract, where its terms are in line with certain situations of the borrower and sell a different item to the saver, mostly a relatively tangle claim against an intermediary. For instance, an financial intermediary can but a mortgage from a borrower and sell something like a deposit account.

Besides, a financial intermediary can temporarily own a financial asset to stand in as part of their investment portfolio. They don’t just create an inventory for resale. These institutions profit from offering relatively higher interest rates to the borrower and paying lower interests to saves.

Financial intermediaries are the most common type of financial market in the world. They include Depository Institutions like commercial banks, savings and loan associations, mutual savings banks, and credit unions. There are also Contractual Savings Institutions like life insurance companies, fire and casualty insurance companies, and pension funds, among others. Last but not least, are investment intermediaries like finance companies, stock and bond mutual funds, and money market mutual funds, who mostly connect buyers to sellers of financial assets.

There are four primary forms of financial market structures, which are determined by the cost of collecting and disseminating information. These structures include securities markets, some of which combine the characteristics of more than one of the categories. Consider the following

Auction markets are simply centralized facilities that facilitate trades between buyers and sellers in an open and highly competitive selling process. It works like a cleaning house, not necessarily a physical place, but any institution than enables a clear bidding process between buyers and sellers. There is centralized information about offers to buy, called bid prices, and offers to sell, called asked prices. This means they all come and are controlled from one place, readily available to willing sellers and will buyers. In this error where technology controls everything, computer networks have become very essential in auctions. Note that these markets don’t allow private transactions between parties.

An auction market can be simply described as a public market, where everything is open and available to participants. They can be call markets, like art auctions – the bids and asked prices are all called at once, or continuous markets, like stocks where the prices appear randomly and continually.

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These are very common markets involving public markets with several dealers spread across a region. They can be spread across the world, and they involve the entire market as part of the asset. There is no centralized mechanism in these markets. The dealers themselves take control of posting the prices for assets and then prepare to sell or buy to or from another party who responds. Customers are exposed to more flexibility and choices than in the case with traders.

Think of these markets simply in terms of banks, like commercial banks and savings banks. They involve financial intermediaries who assist in the fund transfers from savers to borrowers. They do this by giving out specific types of financial assets to savers and taking different forms from borrowers. The financial assets given to lenders are simply claims against financial intermediaries. They, therefore, serve as liabilities on the side of financial intermediaries. On the other hand, the origination of the assets from borrowers, represent claims against the borrower; therefore, they are assets of the intermediaries.

Financial markets are vital in putting savings into more productive use. For instance, in a savings account, money does not just sit in the account; rather, it grows with interest. Also, they are responsible for determining the prices of securities and liquifying financial assets. They are, therefore, a vital part of the economy.

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1.1 What Is Finance?

Learning outcomes.

By the end of this section, you will be able to:

• Describe the main areas in finance.
• Explain the importance of studying finance.
• Discuss the concepts of risk and return.

Definition of Finance

Finance is the study of the management, movement, and raising of money. The word finance can be used as a verb, such as when the First National Bank agrees to finance your home mortgage loan. It can also be used as a noun referring to an entire industry. At its essence, the study of finance is about understanding the uses and sources of cash, as well as the concept of risk-reward trade-off. Finance is also a tool that can help us be better decision makers.

Basic Areas in Finance

Finance is divided into three primary areas in the domestic market: business finance, investments, and financial markets and institutions (see Figure 1.2 ). We look at each here in turn.

Business Finance

Business finance looks at how managers can apply financial principles to maximize the value of a firm in a risky environment. Businesses have many stakeholders. In the case of corporations, the shareholders own the company, and they hire managers to run the company with the intent to maximize shareholder wealth. Consequently, all management decisions should run through the filter of these questions: “How does this decision impact the wealth of the shareholders?” and “Is this the best decision to be made for shareholders?”

In business finance, managers focus on three broad areas (see Figure 1.3 ).

• Working capital management (WCM) is the study and management of short-term assets and liabilities. The chief financial officer (CFO) and the finance team are responsible for establishing company policy for how to manage WCM. The finance department determines credit policy, establishes minimum criteria for the extension of credit to clients, terms of lending, when to extend, and when to take advantage of short-term creditor financing. The accounting department basically implements the finance department’s policies. In many firms, the accounting and finance functions operate in the same department; in others, they are separate.
• Capital budgeting is the process of determining which long-term or fixed assets to acquire in an effort to maximize shareholder value. Capital budgeting decisions add the greatest value to a firm. As such, capital budgeting is thought to be one of the most important financial functions within a firm. The capital budgeting process consists of estimating the value of potential investments by forecasting the size, timing, and risk of cash flows associated with the investments. The finance department develops and compiles cash flow estimates with input from the marketing, operations, accounting, human resources, and economics departments to develop a portfolio of investment projects that collectively maximize the value of the firm.
• Capital structure is the process by which managers focus more specifically on long-term debt and increasing shareholder wealth. Capital structure questions require financial managers to work with economists, lenders, underwriters, investment bankers, and other sources of external financial information and financial capital. When Bacon Signs developed its financial plan, the executives included each of these three aspects of business finance into the plan.

Figure 1.3 demonstrates how the three essential decision-making activities of the financial manager are related to a balance sheet. Working capital management focuses on short-term assets and liabilities, capital budgeting is focused on long-term assets, and capital structure is concerned with the mix of long-term debt and equity financing.

Investments

Investments are products and processes used to create and grow wealth. Most commonly, investment topics include the discussion and application of the different types of financial instruments, delivery vehicles, regulation, and risk-and-return opportunities. Topics also include a discussion of stocks, bonds, and derivative securities such as futures and options. A broad coverage of investment instruments would include mutual funds, exchange-traded funds (ETFs) , and investment vehicles such as 401k plans or individual retirement accounts (IRAs) . In addition, real assets such as gold, real estate, and commodities are also common discussion topics and investment opportunities.

Investments is the most interesting area of finance for many students. Television programs such as Billions and movies such as Wall Street make investing appear glamorous, dangerous, shady, or intoxicating, depending on the situation and the attitude of the viewer. In these programs, the players and their decisions can lead to tremendous wealth or tremendous losses. In reality, most of us will manage our portfolios well shy of the extremes portrayed by the entertainment industry. However, we will need to make personal and business investment decisions, and many students reading this material will work in the investment industry as personal investment advisers, investment analysts, or portfolio managers.

Financial Markets and Institutions

Financial markets and institutions are the firms and regulatory agencies that oversee our financial system. There is overlap in this area with investments and business finance, as the firms involved are profit seeking and need good financial management. They also are commonly the firms that facilitate investment practices in our economy. A financial institution regulated by a federal or state agency will likely handle an individual investment such as the purchase of a stock or mutual fund.

Much of the US regulatory structure for financial markets and institutions developed in the 1930s as a response to the stock market crash of 1929 and the subsequent Great Depression . In the United States, the desire for safety and protection of investors and the financial industry led to the development of many of our primary regulatory agencies and financial regulations. The Securities and Exchange Commission (SEC) was formed with the passage of the Securities Act of 1933 and Securities Exchange Act of 1934 . Major bank regulation in the form of the Glass-Steagall Act (1933) and the Banking Act of 1935 gave rise to government-backed bank deposit insurance and a more robust Federal Reserve Bank.

These regulatory acts separated investment banking from commercial banking. Investment banks and investment companies continued to underwrite and facilitate new bond and equity issues, provide financial advice, and manage mutual funds. Commercial banks and other depository institutions such as savings and loans and credit unions left the equity markets and reduced their loan portfolios to commercial and personal lending but could purchase insurance for their primary sources of funds, checking, and savings deposits.

Today, the finance industry barely resembles the structure your parents and grandparents grew up and/or worked in. Forty years of deregulation have reshaped the industry. Investment and commercial bank operations and firms have merged. The separation of activities between investment and commercial banking has narrowed or been eliminated. Competition from financial firms abroad has increased, and the US financial system, firms, and regulators have learned to adapt, change, and innovate to continue to compete, grow, and prosper.

The Financial Industry Regulatory Authority (FINRA) formed in 2007 to consolidate and replace existing regulatory bodies. FINRA is an independent, nongovernmental organization that writes and enforces the rules governing registered brokers and broker-dealer firms in the United States. The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation created by an act of Congress to protect the clients of brokerage firms that declare bankruptcy. SIPC is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by the firm.

The regulation of the financial industry kicked into high gear in the 1930s and for those times and conditions was a necessary development of our financial industry and regulatory oversight. Deregulation of the finance industry beginning in the 1970s was a necessary pendulum swing in the opposite direction toward more market-based and less restrictive regulation and oversight. The Great Recession of 2007–2009 resulted in the reregulation of several aspects of the financial industry. Some would argue that the regulatory pendulum has swung too far toward deregulation and that the time for more or smarter regulation has returned.

Concepts In Practice

The great recession.

The Great Recession of 2007–2009 exposed many of the weaknesses of our financial system. The ease with which banks could lower credit standards to allow ill-prepared consumers to purchase real estate and the resulting speed with which the world economy plunged into recession is astounding.

Regulation to address the economic crisis was also swift. Fortunately, Ben Bernanke, chairman of the Federal Reserve at the time, had throughout his career conducted extensive research into the causes of and potential resolution of the Great Depression of the 1930s. 2 He was uniquely qualified to lead the economic response to the crisis. Some resulting laws moved to address the immediate needs and others to correct the underlying causes of the recession.

One immediate fix was the Troubled Asset Relief Program (TARP). TARP authorized the Treasury to buy illiquid assets in order to save the financial institutions so important to lubricating our economy. Politically this was a tough decision, as it appeared that the government bailed out greedy bankers. In the end, however, the program was justified because the economy immediately began a slow but steady recovery, most financial institutions did not fail, and the Treasury recouped all of its investment used in the bailout. However, individual homeowners suffered greatly.

The Dodd-Frank Act of 2008 attempted to address many of the underlying causes of the Great Recession by reorganizing and toughening the regulatory framework, including tighter oversight of critically important financial institutions. Dodd-Frank also created the Consumer Financial Protection Bureau (CFPB) to protect consumers from harm caused by unscrupulous banking activities. Today, the hope is that financial institutions will be stopped short of the gross negligence evident prior to 2007 and consumers won’t be left out in the cold due to actions beyond their control.

Sources: History Channel. “Here’s What Caused the Great Recession.” YouTube . May 15, 2018. https://www.youtube.com/watch?v=yM0uonkloXY. Accessed April 18, 2021; Randall D. Guynn, Davis Polk, and Wardwell LLP, “The Financial Panic of 2008 and Financial Regulatory Reform.” Harvard Law School Forum on Corporate Governance . November 20, 2010. https://corpgov.law.harvard.edu/2010/11/20/the-financial-panic-of-2008-and-financial-regulatory-reform/. Accessed April 18, 2021; Sean Ross. “What Major Laws Were Created for the Financial Sector Following the 2008 Crisis?” Investopedia . Updated March 31, 2020. https://www.investopedia.com/ask/answers/063015/what-are-major-laws-acts-regulating-financial-institutions-were-created-response-2008-financial.asp. Accessed April 18, 2021.

Why We Study Finance

Finance is the lubricant that keeps our economy running smoothly. Issuing a mortgage can be profitable for a bank, but it also allows people to live in their own homes and to pay for them over time. Do MasterCard , Venmo , and PayPal make money when you use their product? Sure, but think how much more convenient and safer it is to carry a card or use an app instead of cash. In addition, these services allow you to easily track where and how you spend your money. A well-regulated and independent financial system is important to capital-based economies. Our smoothly functioning financial system has removed us from the days of strictly bartering to our system today, where transactions are as simple as a tap on your mobile phone.

There are any number of professional and personal reasons to study finance. A search of the internet provides a long list of finance-related professions. Interviews with senior managers reveal that an understanding of financial tools and concepts is an important consideration in hiring new employees. Financial skills are among the most important tools for advancement toward greater responsibility and remuneration. Government and work-guaranteed pension benefits are growing less common and less generous, meaning individuals must take greater responsibility for their personal financial well-being now and at retirement. Let’s take a closer look at some of the reasons why we study finance.

There are many career opportunities in the fields of finance. A single course in finance such as this one may pique your interest and encourage you to study more finance-related topics. These studies in turn may qualify you for engaging and high-paying finance careers. We take a closer look at financial career opportunities in Careers in Finance .

A career in finance is just one reason to study finance. Finance is an excellent decision-making tool; it requires analytical thinking. Further, it provides a framework for estimating value through an assessment of the timing, magnitude, and risk of cash flows for long-term projects. Finance is important for more immediate activities as well, such as the development of budgets to assure timely distribution of cash flows such as dividends or paychecks.

An understanding of finance and financial markets opens a broader world of available financial investment opportunities. At one time, commercial bank deposits and the occasional investment in stocks, bonds, real estate, or gold may have provided sufficient coverage of investment opportunities, portfolio diversification, and adequate returns. However, in today’s market of financial technology, derivative securities, and cryptocurrencies, an understanding of available financial products and categories is key for taking advantage of both new and old financial products.

Link to Learning

Job information.

The internet provides a wealth of information about types of jobs in finance, as well as reasons to study it. Investigate the Occupational Outlook Handbook issued by the Bureau of Labor Statistics to see how many of the career opportunities in finance look interesting to you. Think about the type of people you want to work with, the type of work-related activities you enjoy, and where you would like to live. Read “5 Reasons Why You Should Study Finance” at Harvard Business School Online to gain a better understanding of why finance offers a broad career path and is intellectually stimulating and satisfying.

Risk and Return in Finance

Finance tells us that an increase in risk results in an increase in expected return. The study of historical financial markets demonstrates that this relationship generally holds true and that riskier investments over time have provided greater returns. Of course, this is not true all the time and under all conditions; otherwise, where’s the risk?

At its most basic level, risk is uncertainty. The study of finance attempts to quantify risk in a way that helps individuals and organizations assess an appropriate trade-off for risk. Risk-return tradeoffs are all around us in our everyday decision-making. When we consider walking across the street in the middle of a city block or walking down to the marked intersection, we are assessing the trade-off between convenience and safety. Should you buy the required text for your class or instead rely on the professor’s notes and the internet? Should you buy that new-to-you used car sight unseen, or should you spend the money for a mechanic to assess the vehicle before you buy? Should you accept your first job offer at graduation or hold out for the offer you really want? A better understanding of finance makes these types of decisions easier and can provide you, as the decision maker, with statistics instead of just intuition.

Return is compensation for making an investment and waiting for the benefit (see Figure 1.4 ). Return could be the interest earned on an investment in a bond or the dividend from the purchase of stock. Return could be the higher income received and the greater job satisfaction realized from investing in a college education. Individuals tend to be risk averse. This means that for investors to take greater risks, they must have the expectation of greater returns. Investors would not be satisfied if the average return on stocks and bonds were the same as that for a risk-free savings account. Stocks and bonds have greater risk than a savings account, and that means investors expect a greater average return.

The study of finance provides us with the tools to make better and more consistent assessments of the risk-return trade-offs in all decision-making, but especially in financial decision-making. Finance has many different definitions and measurements for risk. Portfolios of investment securities tend to demonstrate the characteristics of a normal return distribution, or the familiar “bell-shaped” curve you studied in your statistics classes. Understanding a security’s average and variability of returns can help us estimate the range and likelihood of higher- or lower-than-expected outcomes. This assessment in turn helps determine appropriate prices that satisfy investors’ required return premiums based on quantifiable expectations about risk or uncertainty. In other words, finance attempts to measure with numbers what we already “know.”

The overall uncertainty of returns has several components.

• Default risk on a financial security is the chance that the issuer will fail to make the required payment. For example, a homeowner may fail to make a monthly mortgage payment, or a corporation may default on required semiannual interest payments on a bond.
• Inflation risk occurs when investors have less purchasing power from the realized cash flows from an investment due to rising prices or inflation.
• Diversifiable risk , also known as unsystematic risk, occurs when investors hold individual securities or smallish portfolios and bear the risk that a larger, more well-rounded portfolio could eliminate. In these situations, investors carry additional risk or uncertainty without additional compensation.
• Non-diversifiable risk , or systematic risk, is what remains after portfolio diversification has eliminated unnecessary diversifiable risk. We measure non-diversifiable risk with a statistical term called beta. Subsequent chapters on risk and return provide a more in-depth discussion of beta.
• Political risk is associated with macroeconomic issues beyond the control of a company or its managers. This is the risk of local, state, or national governments “changing the rules” and disrupting firm cash flows. Political risk could come about due to zoning changes, product liability decisions, taxation, or even nationalization of a firm or industry.
• 2 Brookings Institution. “Ben S. Bernanke.” Brookings Institute . https://www.brookings.edu/experts/ben-s-bernanke/; Ben S. Bernanke. “On Milton Friedman’s 90th Birthday.” The Federal Reserve Board . November 8, 2002. https://www.federalreserve.gov/boarddocs/speeches/2002/20021108/

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Financial Markets Essay Examples

Type of paper: Essay

Topic: Government , Economy , Banking , Money , Economics , Marketing , Investment , Finance

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Published: 03/12/2020

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1. There are many different types of financial markets that operate for example money market, future market, the bond market, etc. I will be discussing bond market and their influence and impact on U.S. markets. In financial terms, bond is a debt security, which is normally issued by the government institutions and financial corporations in order to manage their financial operations and daily working operations. A bond can be a treasury bond, a corporate bond, a junk bond or a municipal bond. When the bond is issued by the agency to the bond holder, they are basically issuing a promise or a debt in the form of paper as a legal instrument with commitment that the capital investment amount plus the interest payment will be returned to the bondholder at the bond maturity date. (Chakravarty, 2003) The interest that is paid on this bond to the bond holder is known as the coupon payments and is generally paid either semi-annually or at annual basis to the owner of the debt instrument. There are different bond types and depending upon the bond classification the coupons are paid on either fixed rate and given according to that or at different changing rates that are linked with economic interest rates and change over time till the maturity period of bond. The maturity of the bond can range from one year to fifty years depending upon the type of bond category. In many cases, the holder of the bond may not want to hold the bond for long or till the agreed time of maturity of the bond and may want to sell it beforehand in a secondary market in order to regain the capital amount back. One classification of bond is also known as convertible bonds that can be easily transformed into stock by the holder of the bond. Bonds are an important part of U.S. economy and are considered to be a valuable because of their profit and business impact the bond trading activity has on the U.S. economy. The bonds tend to make business operations more profitable, and the investment is secure as the bonds are floated by the companies that have good credit rating or the government institutions that have a secure future. Hence for the investors and the companies this is a direct route for gaining profits and capital for their business operations. (Chakravarty, 2003) 2. Many factors impact the interest rates. First and foremost is the economic growth. When a change occurs in the economic conditions of the economy, a shift occurs in the demand schedule of the loans. (Madura, 2010) If a business projects that the economic conditions will improve, they are willing to borrow funds from banks and other financial institutions in order to expand and develop projects that result in the outward shift in the demand curve of loans and result in an upward pressure on the interest rates. When there is a downturn in the economy, the reverse reaction is witnessed in the above-mentioned situation. Another factor that can cause an impact on the interest rates is the inflation rate. Inflation is rise or fall in prices of goods which directly impacts the consumer spending power. When it is predicted that prices will increase, the consumers and businesses mostly make their purchases or book their orders or merchandise before the price increase deadline. In this situation, the businesses and the general consumer are willing to borrow more loans in order to make the early transactions. This change in the consumer spending power results in the inward shift of loans and an outward shift in demand curve of funds. (Madura, 2010) Third factor is the role played by The Federal Reserve in order to maintain the money supply in the economy. The Federal Reserve of any country has the power to increase or decrease the money supply through selling or purchasing debt securities and other commodities. When the Federal Reserve issues a stimulating monetary policy, the money supply increases in the economy which increases the supply of loanable funds into the system. This policy produces downward pressure on the interest rates. When the deficits increases in the economy, the Federal Reserve produces more loanable funds for the economic system, that results in an increase in interest rates. (Madura, 2010) Fourth factor that impacts the interest rate is the exchange rate fluctuation. When the exchange of other country currencies takes place, a change in the money supply, brings a change in the interest rates of the economy. When we compare all the factors, it can be said that Federal Reserve is by far the strongest factor because not only it has its own impact but all affects other factors and the monetary policy that Federal Reserve offers help in increasing employment opportunities, stabilize the market prices and produce long-term rate of interests for economic transactions. (Madura, 2010) 3. The forecasting of interest rate movement is most righted analyzed when the value of the equilibrium is determined by factors in the economy such as demand and supply of funds, interest rates, etc. It is important that current and historical trends should be considered and evaluated. The future demand should be analyzed and predicted. It is important that the demand of household consumer and government parties and institutions should be developed, and future savings should be regulated in order to forecast. (Fox, 2005) 4. The Federal Reserve is the main central bank of the United States. It was founded in 1913 to provide the country with safer and flexible transactions and a proper monetary policy for the business operations to process in. The Federal Reserve system has major roles to play in the economy. The first role is to create policies that have a positive impact in providing stable working environment, more jobs and employment opportunities, stable interest rate condition and stable credit situation in the financial system. It is the responsibility of the Federal Reserve to provide the banking sector with a clear set of regulations in order to protect customer rights and their investments and to control the credit rights. Almost all the countries have their own state banks, and they are able to comprehend the financial systems and monetary policy of each other. Without the proper banking regulations and a control system by state bank, the financial system of the economy will not operate properly. (Fox, 2005) 5. In the latest monetary report published in Feb 2014, it was stated that as a whole the U.S. financial system has performed well and had strengthened its roots. Liquidity condition of the major companies have improved and banks have started to show financial stability. Federal Reserve has taken steps to strengthen the capital market to improve the financial conditions further. The use of leverage has been restricted lately, and the asset market has performed as per the forecasting. Overall the system has performed as the stated measured and the shock capacity of the economic and monetary system as improved. (Monetary Policy Report, 2014) 6. As a financial manager, my first step will be to organize my sets, goals and targets that are needed from the project. The main objective is to expand in the world of corporate bond by constructing a new plant. US$ 10 million will be required for the upcoming project, and I have decided that the company will issue 10,000 bonds at face value of US$ 1000. A five-year bond that will pay a coupon of 2.6%, a ten-year bond will pay a coupon of 3.8% and a twenty-year bond will pay a coupon of 6%. All bonds are expected to complete their tenure of the maturity date. (Fox, 2005)

Chakravarty, S. & Sarkar, A. (2003). Trading Costs in Three U.S. Bond Markets. Journal of Fixed Income, 13(1), 39-48. Fox S. Lynn. The Federal Reserve System: Purposes & Functions (2005) Ninth edition. Federal Reserve Publications Committee. Washington, D.C. Madura, Jeff (2010) “Financial Markets and Institutions” Customs Ed. Cengage Learning. Mason, Ohio. http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm (Feb, 2014) “Monetary Policy Report” http://www.federalreserve.gov/monetarypolicy/files/20140211_mprfullreport.pdf

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Financial Market Failure (Revision Essay Plan)

Last updated 1 May 2018

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This video looks at a possible answer to this question on financial market failure. "Evaluate the micro and macroeconomic policies that might be used to correct financial market failures in the UK economy."

Financial market failure occurs when money, equity and bond markets failure to achieve an efficient and/or equitable outcome. This can lead to economic and social costs including macro instability and loss of trust and confidence in financial institutions. 

Financial market failures include market rigging, speculative bubbles, information failures and low levels of market competition between suppliers.

Micro point 1

One micro policy to address financial market failure would be to provide more licences to encourage smaller challenger banks to enter the industry.

This policy would increase the contestability of retail banking and therefore reduce the monopoly power of established banks such as HSBC and Barclays. More competition can then lead to better outcomes for consumers including lower charges on overdrafts and improved interest rates for savers.

However we know from behavioural economics that consumers have strong default choices when deciding which bank to use, the inconvenience involved in switching means that challenger banks often find it hard to achieve the economies of scale needed to compete effectively.

Micro point 2

A 2nd micro policy would be to introduce price capping on interest rates charged by household loans companies.

Payday loans companies often charge very high interest rates to families which can lead to mounting debt problems and financial distress. A cap on interest charges would reduce the burden of servicing debt for some of the poorest households. 

A possible problem with this policy is that lenders will all charge the maximum capped rate rather than compete at lower interest rates. They could also impose extra charges as a way of getting around the price ceiling.

Macro point 1

One macro policy would be for the Bank of England to impose a higher liquidity ratio. This is the ratio of liquid assets held by a bank to their total assets. 

If banks are required to hold more liquid reserves, then they will have a stronger capital base to help them withstand a future downturn in the economy which could lead to a rise in loan defaults and bad debts. This will help to promote financial and macroeconomic stability for the UK in the long term. 

However there is a risk that stricter controls on bank lending using capital ratios might limit the amount of money that banks are able to lend to businesses looking for debt finance. This could hold back business investment which will hurt long run aggregate supply

Macro point 2

Another macro policy would be for central banks to return gradually towards normal levels of interest rates. 

The base rate set by the Bank of England has been below 1% since 2009. Ultra-low interest rates encourages speculative activity in property and equity markets and can lead to an unsustainable bubble with asset prices well above fair value. 

A downside of returning to higher interest rates of between 3-5% would be household debt is at historically high levels. Millions of people are vulnerable to sharp rises in borrowing costs, the central bank needs to be cautious.

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Finance Essay Topics

Step Up Your Game with These 200 Unique Finance Essay Topics

12 min read

Published on: May 7, 2023

Last updated on: Jan 31, 2024

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Do you find yourself struggling to come up with a compelling topic for your finance essay? Are you feeling overwhelmed by the complex landscape of financial markets and policies?

If so, don't worry – you're not alone!

Choosing the right topic is crucial for the success of your essay. You need to find a problem that is both relevant and interesting, and that you can feasibly research and analyze. 

But with so many potential topics to choose from, where do you even start?

That's where we come in!

In this blog, we'll provide you a variety of finance essay topics that will help you stand out from the crowd. 

We'll also provide you with tips to polish your ideas, so you can craft a truly compelling essay.

So, let's dive into the fascinating world of finance essay topics and discover new insights together!

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Corporate Finance Essay Topics 

If you are interested in how companies manage their financial resources, corporate finance may be the field for you. 

Here are essay topics related to corporate finance:

• Analyzing the impact of dividend policies on shareholder value
• Evaluating the use of financial derivatives to manage corporate risk
• Assessing the impact of mergers and acquisitions on firm performance
• Investigating the role of corporate governance in preventing financial scandals
• Analyzing the relationship between corporate social responsibility and financial performance
• Examining the effects of financial distress on corporate decision-making
• Evaluating the impact of exchange rate fluctuations on multinational corporations
• Assessing the effectiveness of performance-based compensation for CEOs
• Analyzing the impact of technological innovation on corporate financial performance
• Investigating the effectiveness of financial forecasting models for strategic decision-making

Personal Finance Essay Topics 

Managing personal finances can be challenging, especially in today's economy. Check out these personal finance essay topics:

• Analyzing the impact of credit scores on loan approval rates
• Evaluating the effectiveness of budgeting tools and apps for personal finance management
• Investigating the impact of financial literacy on retirement planning
• Analyzing the benefits and drawbacks of using a financial advisor
• Assessing the effectiveness of debt consolidation strategies for managing multiple loans
• Examining the impact of rising healthcare costs on retirement planning
• Evaluating the effectiveness of online investment platforms for small investors
• Analyzing the impact of financial stress on mental health
• Investigating the effectiveness of online personal finance courses for improving financial literacy
• Assessing the impact of tax policies on personal savings rates

Banking and Finance Essay Topics 

• The role of central banks in managing monetary policy
• The impact of Basel III on banking regulation
• The effectiveness of risk management in commercial banks
• The effects of bank mergers and acquisitions on competition
• The relationship between credit risk and profitability in banking
• The role of fintech in transforming the banking industry
• The impact of financial innovation on banking operations
• The impact of non-performing loans on banking stability
• The challenges of bank regulation in the digital age

Business Finance Essay Topics

• The impact of leverage on firm performance
• The role of financial ratios in evaluating business performance
• The effects of working capital management on profitability
• The impact of dividend policy on shareholder value
• The relationship between corporate governance and financial performance
• The role of venture capital in financing new businesses
• The challenges of international business finance
• The effects of trade credit on small business financing
• The impact of intellectual property on business valuation
• The role of microfinance in supporting small businesses  

Public Finance Essay Topics

• The role of government in promoting economic growth
• The impact of taxation on income inequality
• The effects of fiscal policy on aggregate demand
• The role of public-private partnerships in infrastructure finance
• The impact of government debt on economic stability
• The challenges of financing social security systems
• The role of subsidies in promoting renewable energy
• The impact of globalization on public finance
• The challenges of public finance in developing countries
• The impact of climate change on public finance

Accounting and Finance Essay Topics 

• The impact of financial reporting on investor decisions
• The role of accounting standards in financial reporting
• The effects of fair value accounting on financial statements
• The relationship between corporate governance and financial reporting quality
• The impact of financial statement analysis on investment decisions
• The challenges of auditing in the digital age
• The role of forensic accounting in fraud detection
• The impact of tax accounting on corporate finance
• The challenges of accounting for intangible assets
• The effects of accounting regulations on multinational corporations

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International Finance Essay Topics 

• The impact of exchange rate volatility on international trade
• The role of international financial institutions in promoting economic development
• The effects of capital flows on emerging market economies
• The impact of currency manipulation on trade balance sheets
• The relationship between foreign direct investment and economic growth
• The challenges of cross-border banking regulation
• The role of international capital markets in financing global infrastructure
• The impact of trade policies on international finance
• The effects of globalization on international financial stability
• The role of sovereign wealth funds in global finance

Behavioral Finance Essay Topics

If you are interested in this field, consider exploring these essay topics:

• Analyzing the impact of herd behavior on stock market bubbles
• Evaluating the effectiveness of financial education in reducing cognitive biases
• Investigating the impact of overconfidence on investment decision-making
• Analyzing the role of emotions in financial decision-making
• Assessing the impact of loss aversion on portfolio management
• Examining the effects of framing on financial decision-making
• Evaluating the effectiveness of behavioral finance theories in predicting market trends
• Analyzing the impact of social norms on financial decision-making
• Investigating the effectiveness of nudges in promoting financial well-being
• Assessing the impact of cultural differences on behavioral finance

Healthcare Finance Essay Topics 

• The impact of healthcare financing on access to healthcare services
• Healthcare cost control strategies and their effectiveness in improving healthcare quality
• Analyzing the role of health insurance in healthcare financing
• The relationship between healthcare financing and health outcomes
• The effect of healthcare financing on health inequalities
• The role of public-private partnership (ppp) in healthcare financing
• The impact of healthcare financing on technological advancements in healthcare sector
• Healthcare financing policies in addressing the burden of non-communicable diseases 
• The relationship between healthcare financing and social protection
• The role of healthcare financing in achieving universal health coverage

Good Finance Essay Topics

• The impact of the gig economy on personal finance management
• The role of technology in shaping the future of finance
• Analyzing the ethics of tax avoidance and tax evasion in the corporate world
• The importance of financial education in modern society
• A comparative analysis of the effectiveness of traditional and digital banking systems
• The role of behavioral finance in shaping investment strategies
• The impact of social media on the stock market
• Analyzing the ethical dilemmas of investment banking
• The role of financial institutions in promoting economic growth and development
• A critical analysis of the effectiveness of microfinance in poverty alleviation

Finance Paper Topics

• The impact of corporate social responsibility on financial performance
• The role of financial regulation in preventing another global financial crisis
• The impact of inflation on the stock market
• Analyzing the financial implications of climate change
• The effectiveness of alternative financing methods for small businesses
• The impact of political instability on international finance
• Analyzing the effectiveness of crowdfunding platforms
• The role of credit rating agencies in the financial market
• The impact of e-commerce on the retail banking industry
• A comparative analysis of the financial performance of publicly traded and privately held companies

Finance Essay Questions

Looking for some interesting finance essay questions to explore new ideas? Check them out:

• How does the stock market reflect the state of the economy?
• What are the ethical implications of insider trading?
• How do interest rates affect the global economy?
• What are the advantages and disadvantages of investing in the stock market?
• How has technology transformed the financial services industry?
• What is the impact of globalization on international finance?
• How can financial institutions promote financial inclusion and literacy?
• What are the challenges of managing personal finances in today's society?
• How can behavioral finance concepts be applied to investment strategies?
• What are the key factors that contribute to financial market instability?

Finance Argumentative Essay Topics

• Should governments regulate cryptocurrency?
• Is it ethical for companies to use tax loopholes to avoid paying their fair share?
• Should banks be held responsible for the global financial crisis of 2008?
• Is the current student loan system fair to borrowers?
• Should there be limits on CEO salaries in the finance industry?
• Is insider trading ever justified?
• Should the government provide free financial education to the public?
• Is the stock market an accurate reflection of the economy as a whole?
• Should high-frequency trading be allowed?
• Is it ethical for companies to invest in environmentally harmful industries?

Financial Related Essay Topics

• The importance of financial planning for a secure financial future
• Efficient market hypothesis and its implications for investment decision making
• The impact of globalization on financial markets and the economy
• An analysis of the impact of interest rates on the housing market
• The role of financial institutions in promoting economic growth
• The ethics of corporate finance and its impact on corporate social responsibility
• The role of central banks in regulating the economy
• The impact of financial regulation on the banking sector
• The role of financial markets in facilitating international trade

Research Topics in Finance

• An analysis of the impact of exchange rate fluctuations on international trade
• The effectiveness of credit rating agencies in predicting corporate default risk
• The impact of corporate governance on firm performance
• An analysis of the impact of financial innovation on the banking sector
• The relationship between dividend policy and firm value
• The role of financial intermediaries in promoting entrepreneurship
• The impact of insider trading on stock prices
• The impact of political instability on financial markets
• The role of microfinance in promoting financial inclusion
• An analysis of the impact of corporate social responsibility on firm performance

Financial Crisis Research Paper Topics

Let's delve into the world of finance and crisis with these topics!

• The causes of the 2008 financial crisis and its impact on the global economy
• An analysis of the regulatory failures that led to the 2008 financial crisis
• The role of the housing market in the 2008 financial crisis
• The impact of the 1997 Asian financial crisis on emerging economies
• The impact of the European sovereign debt crisis on the Eurozone economy
• The role of financial institutions in the 2011 European debt crisis
• The impact of the 2020 COVID-19 pandemic on the global economy
• Troubled Asset Relief Program (TARP) in stabilizing the US financial system 
• The impact of the 1970s oil crisis on the global economy and financial markets
• The lessons learned from past financial crises and their implications for future 

Financial Management Essay Topics

• The role of financial management in a company's success
• Analyzing the financial risks and rewards of different investment strategies
• The impact of globalization on financial management practices
• The importance of financial forecasting for business planning and decision-making
• How financial management practices can be used to mitigate financial risks
• The role of financial management in mergers and acquisitions
• Best practices for managing cash flow in small businesses
• The impact of interest rates on financial management decisions
• The challenges and opportunities of managing finances in non-profit organizations
• The use of financial ratios and other analytical tools in financial management

Exciting Financial Essay Topics

• How to create a successful personal finance plan for long-term financial security
• Investigating the role of fintech in shaping the future of the financial industry
• The ethical implications of corporate social responsibility in financial decision-making
• Analyzing the impact of COVID-19 on global financial markets and economies
• Exploring the potential benefits and risks of investing in emerging markets
• Investigating the use of big data and AI in financial decision-making
• The future of digital currencies and their impact on traditional financial systems
• The role of financial regulation in preventing financial crises and promoting stability
• Analyzing the impact of interest rate fluctuations on personal and corporate finances
• Investigating the use of blockchain technology in financial transactions

Investment Essay Topics

• Analyzing the impact of diversification on portfolio management
• Evaluating the effectiveness of value investing strategies
• Investigating the impact of market volatility on investment performance
• Analyzing the role of financial advisors in investment decision-making
• Assessing the effectiveness of socially responsible investing strategies
• Examining the effects of behavioral biases on investment performance
• Evaluating the impact of technological innovation on investment management
• Analyzing the effectiveness of momentum investing strategies
• Investigating the impact of interest rates on investment performance
• Assessing the effectiveness of robo-advisors in portfolio management

Tips for Choosing a Good Finance Essay Topic 

When it comes to writing a finance essay, choosing a good topic is crucial to the success of your paper. 

To help you select the best finance essay topic, here are some tips:

• Consider your Interests: Start by thinking about your personal interests and passions. Choosing a topic that you're genuinely interested in can help you stay motivated. It will kep you engaged throughout the writing process.
• Narrow your Focus: Finance is a broad field. It's important to narrow down your topic to a specific aspect or subtopic. This will help you focus your research and ensure that your essay has a clear and concise argument.
• Research Current Events: Stay up to date with current financial news and trends. This can help you identify emerging issues and topics that are relevant and timely.
• Look for Controversy: Controversial topics can make for compelling essays, but be careful to approach them with objectivity and balance. Avoid taking extreme positions or relying on biased sources.
• Consider your Audience: Think about your intended audience and what topics may be of interest or relevance to them. This can help you tailor your essay to their needs and expectations.

All in all , finance is a vast and complex field with many opportunities for research and exploration. To create a well-written essay, it's important to select a topic that aligns with your interests. By following these steps, you can showcase your knowledge and understanding of finance.

Feeling overwhelmed with your academic workload? Let us take the burden off your shoulders – simply say, " write my essay for me ," and we'll deliver top-quality essays tailored to your needs.

But that's not all; for those looking to enhance their writing experience, don't forget to explore our essay writer AI tool.

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Barbara is a highly educated and qualified author with a Ph.D. in public health from an Ivy League university. She has spent a significant amount of time working in the medical field, conducting a thorough study on a variety of health issues. Her work has been published in several major publications.

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The Financial Stability Review provides an overview of potential risks to financial stability in the euro area. It aims to promote awareness in the financial industry and among the public of euro area financial stability issues. It is published twice a year, with the next release provisionally set for 16 May 2024.

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The outlook for euro area financial stability remains fragile amid weak macro-financial conditions and heightened geopolitical risks.

Explore the latest sources of risk and vulnerabilities for the euro area financial system in detail by reading the full report.

We look at risks to euro area residential and commercial real estate markets in a turning property market cycle.

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The outlook for euro area financial stability remains fragile, as tighter financing conditions are increasingly transmitted to the real economy in an environment of weak growth, high inflation and heightened geopolitical risks.

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View the key messages and findings as presented by Vice‑President Luis de Guindos in the press conference marking the latest release.

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What Is Finance?

Understanding finance, key finance terms, history of finance, finance vs. economics, is finance an art or a science, careers in finance, the bottom line, corporate finance, what does finance mean its history, types, and importance explained.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Finance is a term for matters regarding the management, creation, and study of money and investments. It involves the use of credit and debt, securities, and investment to finance current projects using future income flows. Because of this temporal aspect, finance is closely linked to the time value of money , interest rates , and other related topics.

Finance can be broadly divided into three categories:

• Public finance
• Corporate finance
• Personal finance

There are many other specific categories, such as behavioral finance , which seeks to identify the cognitive (e.g., emotional, social, and psychological) reasons behind financial decisions.

Key Takeaways

• Finance is a term broadly describing the study and system of money, investments, and other financial instruments.
• Finance can be divided broadly into three distinct categories: public finance, corporate finance, and personal finance.
• More recent subcategories of finance include social finance and behavioral finance.
• The history of finance and financial activities dates back to the dawn of civilization
• While it has roots in scientific fields, such as statistics, economics, and mathematics, finance also includes non-scientific elements that liken it to an art.

Investopedia / Mira Norian

"Finance" is typically broken down into three broad categories: public finance, corporate finance, and personal finance.

Public finance includes tax systems, government expenditures, budget procedures, stabilization policy and instruments, debt issues, and other government concerns. Corporate finance involves managing assets, liabilities, revenues, and debts for a business. Personal finance defines all financial decisions and activities of an individual or household, including budgeting, insurance, mortgage planning, savings, and retirement planning .

These are some key finance terms you should be familiar with.

Asset : An asset is something of value, such as cash, real estate, or property. A business may have current assets or fixed assets.

Liability : A liability is a financial obligation, such as debt. Liabilities can be current or long-term.

Balance sheet : A balance sheet is a document that shows a company's assets and its liabilities. Subtract the liabilities from the assets to see the firm's net worth.

Cash flow : Cash flow is the movement of money into and out of a business or household.

Compound interest : Unlike simple interest, which is interest added to the principal one time, compound interest is calculated and added periodically. This results in interest being charged not only on the principal, but also on the interest already accrued.

Equity : Equity means ownership. Stocks are called equities, because each share represents a portion of ownership.

Liquidity : Liquidity refers to how easily an asset can be converted to cash. For example, real estate is not a very liquid investment, because it can take weeks or months to sell.

Profit : Profit is the money left over after expenses. A profit and loss statement shows how much a business has earned or lost for a particular period.

Finance, as a study of theory and practice distinct from the field of economics, arose in the 1940s and 1950s with the works of Harry Markowitz, William F. Sharpe, Fischer Black, and Myron Scholes, to name just a few. Particular realms of finance—such as banking, lending, and investing, of course, money itself—have been around since the dawn of civilization in some form or another.

The financial transactions of the early Sumerians were formalized in the Babylonian Code of Hammurabi (circa 1800 BCE). This set of rules regulated ownership or rental of land, employment of agricultural labor, and credit. Yes, there were loans back then, and yes, interest was charged on them—rates varied depending on whether you were borrowing grain or silver.

By 1200 BCE, cowrie shells were used as a form of money in China. Coined money was introduced in the first millennium BCE. King Croesus of Lydia (now Turkey) was one of the first to strike and circulate gold coins around 564 BCE—hence the expression, “rich as Croesus.”

In ancient Rome, coins were stored in the basement of temples as priests or temple workers were considered the most honest, devout, and safest to safeguard assets. Temples also loaned money, acting as financial centers of major cities.

Early Stocks, Bonds, and Options

Belgium claims to be home to the first exchange, with an exchange in Antwerp dating back to 1531. During the 16th century, the East India Company became the first publicly-traded company as it issued stock and paid dividends on proceeds from its voyages. The London Stock Exchange was created in 1773 and was followed by the New York Stock Exchange less than 20 years later.

The earliest recorded bond dates back to 2400 BCE, as a stone tablet that recorded debt obligations that guaranteed repayment of grain. During the Middle Ages, governments began issuing debts to fund war efforts. In the 17th century, the Bank of England was created to finance the British Navy. The United States also began issuing Treasury bonds to support the Revolutionary War.

Options contracts can be found dating back to the Bible. In Genesis 29, Laban offers Jacob the option to marry his daughter in exchange for seven years of labor. However, this example demonstrates the difficulty of preserving obligations, as Laban reneged on the agreement after Jacob's labor was complete.

In Aristotle's 4th-century philosophical work Politics, the early practice of options is outlined through an anecdote by the philosopher Thales. Believing a great future harvest of olives in the coming year, Thales pre-emptively acquired the rights to all olive presses in Chios and Miletus. Regarding options on an exchange, both forward and options contracts were integrated into Amsterdam's sophisticated clearing process by the mid-17th century.

Advances in Accounting

Compound interest —interest calculated not just on principal but on previously accrued interest—was known to ancient civilizations (the Babylonians had a phrase for “interest on interest,” which basically defines the concept). But it was not until medieval times that mathematicians started to analyze it in order to show how invested sums could mount up: One of the earliest and most important sources is the arithmetical manuscript written in 1202 by Leonardo Fibonacci of Pisa, known as Liber Abaci , which gives examples comparing compound and simple interest.

The first comprehensive treatise on book-keeping and accountancy, Luca Pacioli's Summa de arithmetica, geometria, proportioni et proportionalita , was published in Venice in 1494. A book on accountancy and arithmetic written by William Colson appeared in 1612, containing the earliest tables of compound interest written in English. A year later, Richard Witt published his Arithmeticall Questions in London in 1613, and compound interest was thoroughly accepted.

Towards the end of the 17th century, in England and the Netherlands, interest calculations were combined with age-dependent survival rates to create the first life annuities.

Types of Finance

Public finance.

The federal government helps prevent market failure by overseeing the allocation of resources, distribution of income, and stabilization of the economy. Regular funding for these programs is secured mostly through taxation. Borrowing from banks, insurance companies, and other governments and earning dividends from its companies also help finance the federal government.

State and local governments also receive grants and aid from the federal government. Other sources of public finance include user charges from ports, airport services, and other facilities; fines resulting from breaking laws; revenues from licenses and fees, such as for driving; and sales of government securities and bond issues.

Businesses obtain financing through a variety of means, ranging from equity investments to credit arrangements. A firm might take out a loan from a bank or arrange for a line of credit. Acquiring and managing debt properly can help a company expand and become more profitable.

Startups may receive capital from angel investors or venture capitalists in exchange for a percentage of ownership. If a company thrives and goes public, it will issue shares on a stock exchange; such initial public offerings (IPO) bring a great influx of cash into a firm. Established companies may sell additional shares or issue corporate bonds to raise money. Businesses may purchase dividend-paying stocks, blue-chip bonds, or interest-bearing bank certificates of deposit (CDs); they may also buy other companies in an effort to boost revenue.

Recent examples of corporate financing include:

• Bausch & Lomb Corp's initial public offering was initially filed Jan. 13, 2022, and officially sold shares in May 2022. The healthcare company generated $630 million in proceeds.
• Ford Motor Credit Company LLC manages outstanding notes to raise capital or extinguish debt to support Ford Motor Company.
• HomeLight, a real estate company, used a blended financial approach to raise $115 million ($60 million by issuing additional equity and $55 million through debt financing). HomeLight used the additional capital to acquire lending start-up Accept.inc.

Personal Finance

Personal financial planning generally involves analyzing an individual's or a family's current financial position, predicting short-term, and long-term needs, and executing a plan to fulfill those needs within individual financial constraints. Personal finance depends largely on one's earnings, living requirements, and individual goals and desires.

Matters of personal finance include but are not limited to: the securing of financial products like credit cards; life and home insurance; mortgages; and retirement products. Personal banking (such as checking and savings accounts, individual retirement accounts (IRAs), and 401(k) plans) is also considered a part of personal finance.

The most important aspects of personal finance include:

• Assessing the current financial status (expected cash flow, current savings, and so on)
• Buying insurance to protect against risk and to ensure one's material standing is secure
• Calculating and filing taxes
• Earmarking savings and investments
• Planning for retirement

As a specialized field, personal finance is a recent development, though forms of it have been taught in universities and schools as "home economics" or " consumer economics " since the early 20 th century. The field was initially disregarded by male economists, as "home economics" appeared to be the purview of housewives. Recently, economists have repeatedly stressed widespread education in matters of personal finance as integral to the macro performance of the overall national economy.

Social Finance

Social finance typically refers to investments made in social enterprises including charitable organizations and some cooperatives. Rather than an outright donation, these investments take the form of equity or debt financing, in which the investor seeks both a financial reward as well as a social gain.

Modern forms of social finance also include some segments of microfinance, specifically loans to small business owners and entrepreneurs in less developed countries to enable their enterprises to grow. Lenders earn a return on their loans while simultaneously helping to improve individuals' standard of living and to benefit the local society and economy.

Social impact bonds (also known as Pay for Success Bonds or social benefit bonds) are a specific type of instrument that acts as a contract with the public sector or local government. Repayment and return on investment are contingent upon the achievement of certain social outcomes and achievements.

Behavioral Finance

There was a time when theoretical and empirical evidence seemed to suggest that conventional financial theories were reasonably successful at predicting and explaining certain types of economic events. Nonetheless, as time went on, academics in the financial and economic realms detected anomalies and behaviors which occurred in the real world but could not be explained by any available theories.

It became increasingly clear that conventional theories could explain certain “idealized” events—but that the real world was, in fact, a great deal more messy and disorganized, and that market participants frequently behave in ways that are irrational and thus difficult to predict according to those models.

As a result, academics began to turn to cognitive psychology in order to account for irrational and illogical behaviors which are unexplained by modern financial theory. Behavioral science is the field that was born out of these efforts; it seeks to explain our actions, whereas modern finance seeks to explain the actions of the idealized “ economic man ” ( Homo economicus ).

Behavioral finance, a sub-field of behavioral economics, proposes psychology-based theories to explain financial anomalies, such as severe rises or falls in stock price. The purpose is to identify and understand why people make certain financial choices. Within behavioral finance, it is assumed the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes.

Daniel Kahneman and Amos Tversky, who began to collaborate in the late 1960s, are considered by many to be the fathers of behavioral finance. Joining them later was Richard Thaler , who combined economics and finance with elements of psychology in order to develop concepts like mental accounting, the endowment effect, and other biases that have an impact on people’s behavior.

Tenets of Behavioral Finance

Behavioral finance encompasses many concepts, but four are key:  mental accounting , herd behavior, anchoring, and high self-rating and overconfidence. 

Mental accounting refers to the propensity for people to allocate money for specific purposes based on miscellaneous subjective criteria, including the source of the money and the intended use for each account. The theory of mental accounting suggests that individuals are likely to assign different functions to each asset group or account, the result of which can be an illogical, even detrimental, set of behaviors. For instance, some people keep a special “money jar” set aside for a vacation or a new home while at the same time carrying substantial credit card debt.

Herd behavior states that people tend to mimic the financial behaviors of the majority, or herd, whether those actions are rational or irrational. In many cases, herd behavior is a set of decisions and actions that an individual would not necessarily make on his or her own, but which seem to have legitimacy because "everyone's doing it." Herd behavior often is considered a major cause of financial panics and stock market crashes. 

Anchoring refers to attaching spending to a certain reference point or level, even though it may have no logical relevance to the decision at hand. One common example of “ anchoring ” is the conventional wisdom that a diamond engagement ring should cost about two months’ worth of salary. Another might be buying a stock that briefly rose from trading around $65 to hit $80 and then fell back to $65, out of a sense that it's now a bargain (anchoring your strategy at that $80 price). While that could be true, it's more likely that the $80 figure was an anomaly, and $65 is the true value of the shares.

High self-rating refers to a person's tendency to rank him/herself better than others or higher than an average person. For example, an investor may think that he is an investment guru when his investments perform optimally, blocking out the investments that are performing poorly. High self-rating goes hand-in-hand with overconfidence , which reflects the tendency to overestimate or exaggerate one’s ability to successfully perform a given task. Overconfidence can be harmful to an investor’s ability to pick stocks, for example. A 1998 study by researcher Terrance Odean found that overconfident investors typically conducted more trades as compared with their less-confident counterparts—and these trades actually produced yields significantly lower than the market.

Scholars have argued that the past few decades have witnessed an unparalleled expansion of financialization—or the role of finance in everyday business or life.

Economics and finance are interrelated, informing and influencing each other. Investors care about economic data because they also influence the markets to a great degree. It's important for investors to avoid "either/or" arguments regarding economics and finance; both are important and have valid applications.

In general, the focus of economics—especially macroeconomics —tends to be a bigger picture in nature, such as how a country, region, or market is performing. Economics also can focus on public policy, while the focus of finance is more individual, company- or industry-specific.

Microeconomics explains what to expect if certain conditions change on the industry, firm, or individual level. If a manufacturer raises the prices of cars, microeconomics says consumers will tend to buy fewer than before. If a major copper mine collapses in South America, the price of copper will tend to increase, because supply is restricted.

Finance also focuses on how companies and investors evaluate risk and return. Historically, economics has been more theoretical and finance more practical, but in the last 20 years, the distinction has become much less pronounced.

The short answer to this question is: both .

Finance As a Science

Finance, as a field of study and an area of business, definitely has strong roots in related-scientific areas, such as statistics and mathematics. Furthermore, many modern financial theories resemble scientific or mathematical formulas.

However, there is no denying the fact that the financial industry also includes non-scientific elements that liken it to an art. For example, it has been discovered that human emotions (and decisions made because of them) play a large role in many aspects of the financial world.

Modern financial theories, such as the Black Scholes model , draw heavily on the laws of statistics and mathematics found in science; their very creation would have been impossible if science hadn't laid the initial groundwork. Also, theoretical constructs, such as the capital asset pricing model (CAPM) and the efficient market hypothesis (EMH), attempt to logically explain the behavior of the stock market in an emotionless, completely rational manner, wholly ignoring elements such as market sentiment and investor sentiment.

Finance As an Art

Still, while these and other academic advancements have greatly improved the day-to-day operations of the financial markets, history is rife with examples that seem to contradict the notion that finance behaves according to rational scientific laws. For example, stock market disasters, such as the October 1987 crash (Black Monday), which saw the Dow Jones Industrial Average (DJIA) fall 22%, and the great 1929 stock market crash beginning on Black Thursday (Oct. 24, 1929), are not suitably explained by scientific theories such as the EMH. The human element of fear also played a part (the reason a dramatic fall in the stock market is often called a "panic").

In addition, the track records of investors have shown that markets are not entirely efficient and, therefore, not entirely scientific. Studies have shown that investor sentiment appears to be mildly influenced by weather, with the overall market generally becoming more bullish when the weather is predominantly sunny. Other phenomena include the January effect , the pattern of stock prices falling near the end of one calendar year and rising at the beginning of the next.

There are many career options for someone interested in finance. Here are a few common career paths.

The average recipient of a bachelor's degree in finance earned $72,000 a year as of 2023, according to the website Payscale.

Accountant : An accountant manages a company's financial records, tracks expenses, and runs reports.

Auditor : An auditor is someone tasked with ensuring accuracy in financial records. They may be employed by a company to analyze finances, or they may work for the government.

Banker : A commercial banker works with businesses to provide banking services such as accounts and loans. An investment banker is someone who focuses on companies looking to raise capital or conduct a sale or merger.

Capital manager : A capital management professional helps a company allocate its capital resources and balance them against its debts.

Lender : Someone who works in lending, such as a loan officer, manages the issuance of loans. For example, a mortgage lender works up contracts that secure a real estate loan.

Market analyst : Market analysts evaluate trends and make forecasts that account for changing market conditions, preparing recommendations that can guide a company's financial decisions.

The amount that wages in the finance and insurance industry have increased since 2006, according to Payscale.

How Can I Learn Finance?

As college students, undergraduate majors in finance will learn the ins and outs. A masters degree in finance will hone those skills and expand your knowledge base. An MBA will also provide some basics for corporate finance and similar topics. For those who already have graduated without a finance degree, the chartered financial analyst (CFA) self-study program is a rigorous series of three difficult exams that culminates in a globally-recognized credential in finance. Other, more specific industry standards also exist such as the certified financial planner (CFP).

What Is the Purpose of Finance?

Finance involves borrowing & lending, investing, raising capital, and selling & trading securities. The purpose of these pursuits is to allow companies and individuals to fund certain activities or projects today, to be repaid in the future based on income streams generated from those activities. Without finance, people would not be able to afford to buy homes (entirely in cash), and companies would not be able to grow and expand as they can today. Finance, therefore, allows for the more efficient allocation of capital resources.

What Are the Basic Areas of Finance?

Finance is generally divided into these three basic areas:

• Public finance includes tax, spending, budgeting, and debt issuance policies that affect how a government pays for the services it provides to the public
• Corporate finance refers to the financial activities related to running a company or business, usually with a division or department set up to oversee those financial activities.
• Personal finance involves money matters for individuals and their families, including budgeting, strategizing, saving and investing, purchasing financial products, and safeguarding assets. Banking is also considered a component of personal finance.

How Much Do Finance Jobs Pay?

Finance jobs can vary a lot in pay. Among the most common positions:

• A personal financial advisor 's  median  annual compensation is $94,170, according to the latest  U.S. Bureau of Labor Statistics  (BLS) statistics.
• The median pay for budget analysts —the professionals who examine how a company or organization spends money—is a solid $79,940 annually. A job as a treasury analyst pays $60,730 a year on average, according to Payscale. However, corporate treasurers, who have more experience, make an average salary of $118,704.
• Financial analysts make a median of $81,410, though salaries can run in the six figures at major Wall Street firms.
• Accountants and auditors ' median pay clocks in at $77,250. According to Payscale, the average salary for CPAs ranges from $50,000 to $126,000 per year.
• Financial managers —who create financial reports, direct investment activities, and develop plans for the long-term financial goals of their organization—have a median pay of $131,710 per year, reflecting the fact that theirs is a fairly senior position.
• Securities, commodities, and financial services sales agents —brokers and financial advisors who connect buyers and sellers in financial markets—make a median of $62,910 per year. However, their compensation is often commission-based, and so a salaried figure may not fully reflect their earnings.

According to an Indeed.com survey, Chief Finance Officers (CFOs) have the highest salaried jobs in finance. As of mid-2022, CFOs earned an average of $123,265 before bonuses.

What Is the Difference Between Accounting and Finance?

Accounting is one aspect of finance that tracks day-to-day cash flows, expenses, and income. Accounting tasks include bookkeeping, tax preparation, and auditing.

Finance is a broad term that describes a variety of activities. But basically, they all boil down to the practice of managing money—getting, spending, and everything in between, from borrowing to investing. Along with activities, finance also refers to the tools and instruments people use in relation to money, and the systems and institutions through which activities occur.

Finance can involve something as large as a country's trade deficit or as small as the dollar bills in a person's wallet. But without it, very little could function—neither an individual household, nor a corporation, nor a society.

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The UK is trapped in a cycle of political, social and financial turmoil. But there is a way out…

The Conservatives’ pernicious reign, defined by a toxic belief in self-organising markets, has brought Britain to its knees. But we now have an opportunity to turn things around – by reimagining the UK as a ‘we’ society rather than an ‘I’ society

I f there is any consensus in our otherwise fractured, toxic national debate it is that we cannot go on like this. Our economy is in crisis, exemplified by an annual £100bn shortfall in public and private investment, which must be lifted decisively for Britain to break out of today’s triple whammy of stagnant growth, productivity and living standards. Society reels from alarming gaps in the provision of crucial public services and the yawning unfairness in the distribution of income, wealth and opportunity. Our democracy and state seem incapable of acknowledging the full extent of these deformities, let alone adequately responding to them. Our international standing has plummeted at a time of geopolitical peril. A transformative response is an imperative. My new book, This Time No Mistakes: How to Remake Britain, tries to address the origins of this interlinked crisis – and offer a feasible way out. Nothing is immutable. We are agents of our own destiny.

The heart of the problem is a misconception about how capitalism and society work. Capitalism must be managed and regulated to work for the common good, just as society has to be curated to provide fairness and opportunity for all. Crucially, the vitality of the two are interdependent. Capitalism must be organised so it provides economic ladders that every individual can climb while a social contract must offer a floor below which they cannot fall. Britain’s problem is that the Conservative party, in power for all but 13 of the last 45 years, does not accept these truths or interdependencies. Worse, even if it did, neither the dominant culture and practise of our capitalism, nor the structure of our democracy, state and media would have made it easy to fashion the necessary responses.

Conservative ideology has been in thrall to the contrary proposition that markets will self-organise to produce the best economic and social outcomes propelled by individual energy and ambition alone. The British state confers near-continual unfettered power to the Conservatives, and so in their view needs no reform. Yet the reality is that capitalism’s unchecked rollercoaster rhythms create instability, inequity and monopoly and so must be managed and counteracted. Nor can capitalism be relied upon to best organise how firms are governed and ownership responsibilities discharged; how workers are properly trained and paid; or to ensure that fair dealing is the norm between firms and their customers. Of necessity enter the state, much better designed than at present.

The UK has its back against the wall to a degree unparalleled in its peacetime history, facing economic problems more acute than the successive sterling crises of the 20th century or the trade union militancy that prompted the general strike of 1926 or winter of discontent in 1979. The level of our national debt has climbed alarmingly over the past quarter of a century, with no compensating increase in public assets, so that the net worth of the public sector – assets less liabilities – is more dangerously in the red than any other country bar Portugal. Similarly, more than 20 years of imports of goods and services exceeding exports has meant our international debts have climbed by £1.5tn, so that our balance sheet – positive for centuries as a result of empire and as pioneer of the Industrial Revolution – is now dangerously negative. Fifty companies that could have been in the FTSE 100 were sold abroad between 1997 and 2017; we are running out of assets to sell. At the same time almost every metric on the economic and social dashboard – whether social mobility or the number of new companies launching on the London stock market – is flashing amber or red.

Rightwing ideological maxims, initiated by Margaret Thatcher in 1979 and continued by her imitators, have led to a sequence of policy disasters – monetarism, wholesale financial deregulation, austerity and then Brexit. Far from launching a renaissance, Thatcher was the author of pernicious decline. The doctrine is that the private “I” is morally superior to anything public, that the state’s “coercive” proclivities must be reined in to promote a “free” market, that regulation and taxation stifle enterprise, that unless ferociously means-tested and minimalist, welfare creates a huge underclass of undeserving “shirkers”, and that good public services follow from a successful economy rather than being integral to it.

Little of the policy that flows from this jumble of ideology and prejudice has any evidence base. As the totality of the failure has unfolded, so the Conservative party’s unity has fragmented into the blind alleys of libertarianism and the debacle of the Truss government, ongoing phobia about all things European and the temptations of anti-immigrant, anti-foreigner, anti-woke populism. It has become an ungovernable federation of cults.

In the 1980s, monetarism did not contain inflation as billed, but rather prompted mass unemployment, hollowed out much of our productive economy – manufacturing employment nearly halved in a decade – and eviscerated public investment. The areas so scarred by the experience would, 30 years later, vote for Brexit. Financial deregulation led to the fastest rise in private indebtedness in our history, propelling illusory economic growth buoyed not by investment and innovation but a flood of credit. It could only end in tears. Writing The State We’re In in the mid-1990s, to warn of an impending tragedy without a change of course, I did not anticipate the great financial crisis of 2007/8, felt most acutely in Britain, although it was obvious the whole rickety structure could only fail in some way. Nor did I imagine that Britain would repeat the failures with the economically illiterate budgetary tightening of austerity and then torch the one successful economic policy asset it had remaining, EU membership, which had boosted GDP by 10%. Yet such was the grip of the right on the Tory party that their bad ideas, once unthinkable, became our lived reality.

A nd Britain’s liberal left cannot absolve itself of blame. If Conservatism has over-emphasised the “I”, the left has not yet found an electorally attractive way of making the case for “We” – or, better still, blending it with the “I” to create a political philosophy, and attractive policies that flow from it, that would appeal to the majority. My proposition is that the “We” should be built on fusing an ethic of socialism grounded in profound human attachment to fellowship, mutuality and co-operation with the ethic of progressive or new liberalism that emerged 150 years ago as a challenge to classic liberalism. Essentially, liberal thinkers such as Thomas Hill Green and Leonard Hobhouse (forerunners of progressive liberals Keynes and Beveridge) argued that individuals and society were in a constant iterative relationship. Individuals shape society, society shapes individuals, and each and everyone has an obligation to make the social whole as strong as possible, which they are obliged to recognise even while they pursue their own ambitions and interests. Green called this the politics of obligation, which not only the great reforming Liberal government would follow from 1906-14, but later the Keynesian economic revolution and Beveridge’s welfare state.

Green called this the politics of obligation, which not only the great reforming , but later the Keynesian economic revolution and Beveridge’s welfare state.

Labour, as Tony Crosland diagnosed in the 1950s in The Future of Socialism , was founded on being all things leftist to everyone to encourage as big a membership as possible. It was a coalition of Marxists to gradualist Fabians – so laying the foundation for more than 100 years of feuding. Only the ethic of socialism, which has deep roots in western philosophy, the great religions and the Enlightenment, stands the test of time. It was Aristotle who declared that those who deny the primacy of a healthy society to their individual wellbeing are either “a beast or a god”, while the father of British empiricism, Francis Bacon, would write “wealth is like muck. It is not much good but if it be spread.”

Progressive liberalism and an ethic of socialism are not incompatible value systems: they are complementary. Progressive liberalism leans into the individualism that propels capitalism while accepting social obligations; an ethic of socialism leans into the foundation of a social contract and infrastructure of justice that underpin the sinews of a good society. Ideological socialism’s hostility to capital and liberalism’s association with the upper class and upper middle class initially made a rapprochement between the two impossible. Today those obstacles have faded. It was Tony Blair who saw the opportunity that could be grasped, and perhaps his best contribution to progressive politics was his rewriting of Labour’s infamous high socialist clause IV to articulate the fusion. New Labour may have shrunk from the full implications; it will fall to successors to make it live.

The vision is of a “we society” – a high investment economy populated by companies that take their social responsibilities seriously, underpinned by a rejuvenated social contract in which health, housing, education, justice, welfare and the labour market all combine to offer every individual the chance fully to participate in work, social and civic life. No more lost Einsteins and Marie Curies.

T he starting point must be to raise public investment decisively and so “crowd in” private investment radically to lift productivity and real wages (wages adjusted for inflation). Three targets select themselves – the vital need to close the disgraceful gap in productivity, infrastructure and economic performance between London and the regions; the commitment to achieve net zero by 2050 given the alarming rise in global temperatures; and the need to lift research and development spending dramatically. To move the dial in all these areas will require public borrowing for such investment to rise by at least 1% of GDP, or between £25bn– £30bn, with fiscal rules organised around real-world, rather than accounting, goals. The financial markets will be reassured if they know that the investment they are supporting is strategic and thought through. Britain can break out of its low growth trap without financial mishap.

Shibboleths about taxation need to be put to one side. Taxation represents the “we”, and as long as the demands on all sections of society are reasonable – involving at present a greater contribution by the wealthy, whose assets in relation to GDP have doubled since 1980 – there is no evidence that tax receipts at today’s level or even marginally higher will damage growth. What matters is that Britain does what it must to lift its growth rate. A “growth commission” should establish rolling targets for public investment and be held to account to achieving them – the means to vitally needed change.

Importantly, the savings and investment system must be reshaped to drive credit and equity investment to support the financial needs of the companies big and small that we need to feed off the surge in public investment. Two young institutions – the UK Infrastructure Bank and British Business Bank – must be turbocharged so they can operate at the multibillion-pound scale necessary. Banks must be incentivised to supply business loans on much less onerous and flexible terms, and the pension system must be boosted and organised to invest in fast-growing companies based on frontier new technologies. A big multibillion private sector wealth fund – already mooted by some in the City – must work in concert with a public sector wealth fund to invest in what will be the great companies of tomorrow, ensuring they stay British-owned to anchor our economy.

The law needs to ensure that companies make their prime objective the achievement of great social purposes rather than short-term self-enrichment. This should especially apply to all our regulated utilities. The best in British business and our utilities have already begun to move in this direction, putting achievement of great purpose at their heart: it needs to become the general rule. Competition policy must be stepped up so that there is much less incentive and capacity to rig prices in monopoly or quasi monopoly positions. This is particularly important for those businesses and sectors whose business models depend on strength in “intangibles” – intellectual property, human skills, data and digital advantages, research – whose growth has been cramped by so many financial and regulatory biases that favour incumbents. British capitalism, in short, needs to be repurposed both to grow and to work for the common good.

N o less essential is to repair the threadbare social contract. The new risks and inequalities that every citizen will confront in an ever faster moving environment, along with new centres of prosperity, need to be mitigated and managed to ensure the new economic world is underwritten by great education, health and housing – and income support when for any reason people find it impossible to work. The workplace needs to be reconfigured so employees are conferred dignity and voice, with trade unions as active partners of purposeful companies. There must be a proper system of social care. We cannot have children going hungry in their millions, with schools, training institutions and further education colleges allowed to decay. And lastly, housing must be restored as a central pillar of the good society. Council tax, the mortgage market, social housing and the system of tenure all require a major overhaul. It would all be integral to a British-style New Deal.

The British state that perforce must catalyse and lead all this must be reformed and recast. It needs the capacity to act strategically, but with far stronger mechanisms for being held accountable for what it does. Parliament must recover its capacity to deliberate and scrutinise along with making law. The reduction of MPs to mere lobby-fodder ciphers to service the transient whims of an unprecedented churn of ministers is surely one reason why nearly 100 this parliament – a record – have been sanctioned for gross lapses in their behaviour. Our second chamber, the Lords, must be democratised. Ethical standards, from conduct in office to political donations, need to be respected and enforced. Boris Johnson’s abuses cannot be allowed again. The independence of the judiciary must be better entrenched. The tone and content of our national conversation, framed by a dominant and frequently hysterically biased rightwing media magnified by social media, needs to be hosed down – a revival in public service broadcasting and regulation of content is a necessity.

Britain has the potential to become an envied European economic and social model. Indeed to re-engage with the European Union is another indispensable part of recovery. The case is not only economic, recovering lost markets, increasing trade intensity, and stimulating falling inward investment that are costing a lost 5% of GDP every year (and growing) but geopolitical. Britain must be “in the room” where the great decisions on Ukraine, defence, security, energy, climate emergency, and the regulatory standards are taken that will configure our continent. Empire and Commonwealth have gone; the 21st century will be shaped by three great blocs – the US, China and the EU. To be alone to assert a meaningless “sovereignty” to assuage the fantasies of rightwing populists is madness.

The emerging rightwing nexus of libertarian tax-cutters and immigration-phobes, so ready to put achieving those aims above the rule of law and respect for human rights, is unfit to govern. At the next election Britain needs a government that will sure-footedly reshape our capitalism and society to promote growth, enfranchisement and a country at ease with itself – respecting rather than deifying its past better to build the future. We can act to shape our destiny. This time no mistakes.

This article is an edited extract from This Time No Mistakes by Will Hutton, published by Head of Zeus (£25). To support the Guardian and Observer order your copy at guardianbookshop.com . Delivery charges may apply

Will Hutton and Alastair Campbell on How to Remake Britain, Union Chapel, London N1, Monday 15 April 7pm

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CFA Society Sri Lanka Capital Market Awards 2024 to recgonise ESG reporting

Monday, 8 April 2024 00:41 -     - {{hitsCtrl.values.hits}}

The 11th annual CFA Society Sri Lanka Capital Market Awards will be held on 18 June 2024, with a key highlight being the Best ESG Reporting Award conferred for the first time in the history of the signature event. ESG reporting refers to the process of disclosing a company’s performance and practices related to environmental, social, and governance (ESG) factors. It involves communicating relevant information to key stakeholders, including investors, employees, customers, regulators, and the public, about how a company is managing its ESG risks and opportunities. First mooted at the CFA Society Sri Lanka Capital Market Awards 2023, the Best ESG Reporting Award will recognize companies listed on the Colombo Stock Exchange (CSE) that have demonstrated a commitment to creating a positive impact in the areas of environment, social, and governance and have adopted best practices in relation to global ESG reporting standards and disclosures. CFA Society Sri Lanka Vice President and ESG Committee Chair Rashmi Peiris-Paranavitane said: “The CFA Society Sri Lanka is committed to promoting sustainability in our capital markets. The introduction of this award is a continuation of those efforts to encourage the adoption of best practices in sustainability reporting among corporates in Sri Lanka.” Giving prominence to ESG reporting among listed entities is anticipated to help them understand that financial performance is not the sole measure of performance. Today, companies work in the context of global markets and therefore, need to be in line with relevant regulations and compliance, particularly in regions such as the European Union (EU), which requires a greater focus on ESG factors. In addition, global institutional investors maintain a stringent focus on ESG reporting as a prerequisite when considering equity investments, thereby benefiting listed entities that consider ESG factors when looking to attract foreign investments. ESG advocacy efforts gather speed Awareness of ESG remains low in Sri Lanka’s capital markets domain with only a handful of large corporations considering ESG factors in detail, while local investors also tend to demonstrate low awareness levels on the subject. Set against this backdrop, CFA Society Sri Lanka’s advocacy efforts have included webinars focused on ESG, catering to investors and companies, as well as universities and the general public. Moreover, the Society has promoted the Certificate in ESG Investing, awarded by CFA Institute, in a bid to develop ESG-related skills among local market practitioners. CFA Society Sri Lanka also provides technical assistance for regulatory bodies in Sri Lanka to develop ESG standards and expects that over time, more listed companies will adopt reporting standards while investors will also learn to look beyond the financials. Two-step process to evaluate award applicants. The evaluation process for the Best ESG Reporting Award involves selection criteria that have been developed in line with global best practices on ESG reporting and encompasses a two-step process. The first step requires companies to submit an application form, available on the CFA Society Sri Lanka website and published in newspapers. These entities would be shortlisted based on their reporting practices, the frameworks used and ESG factor disclosures. The deadline for submitting applications is 29 April 2024. The second step would see shortlisted companies being invited to make a presentation to a panel of judges comprising a collection of ESG industry practitioners, ESG research analysts, and individuals with a background in climate change at leading financial institutions. Based on this process, three awards – Gold, Silver, and Bronze – will be conferred at the CFA Society Sri Lanka Capital Market Awards 2024.

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What Tesla’s Troubles Signal for the E.V. Revolution

The carmaker’s disappointing results point to slowing demand and a “sharp deterioration in growth” that extends beyond Elon Musk’s company.

By Andrew Ross Sorkin ,  Ravi Mattu ,  Bernhard Warner ,  Sarah Kessler ,  Michael J. de la Merced ,  Lauren Hirsch and Ephrat Livni

Tesla’s woes prompt an E.V. reassessment

Wall Street has sounded the alarm for weeks that the transition to electric vehicles may be stalling, despite billions in government subsidies and huge investments by auto giants.

Tesla’s latest sales figures suggest that the pullback may be worse than thought — and beyond one company’s ability to fix.

Tesla’s numbers undershot forecasts. The car maker’s stock fell nearly 5 percent on Tuesday after it reported deliveries of 387,000 cars worldwide in the first quarter — the Evercore ISI estimate was 443,000 — in its first year-on-year quarterly decline since 2020.

That has contributed to a more than 30 percent decline in Tesla’s stock, which has made it one of the worst performers on the S&P 500 this year.

Tesla had warned of “ notably lower ” growth this year. The company has faced setbacks including a suspected arson attack on its German gigafactory and shipping delays tied to the turmoil in the Red Sea. Meanwhile, high interest rates and the rise of cheaper Chinese E.V.s are sapping global demand and eating into Tesla’s once dominant market share.

Some Elon Musk critics — including Ross Gerber, an outspoken Tesla investor — laid the blame squarely on the company’s C.E.O., saying that his “toxic behavior” had “ absolutely damaged the brand .” (Musk has said little about the Tesla numbers, except to call Gerber “ an idiot ,” and to note “it was a tough quarter” for all E.V. makers.)

Musk isn’t wrong on that front. China’s BYD, which briefly dethroned Tesla as the world’s biggest E.V. maker, on Tuesday reported sales of roughly 300,000 last quarter, a 13 percent gain from the same period earlier but a quarter-on-quarter dip. The Warren Buffett-backed carmaker has gained market share in Europe and Asia by appealing to more cost-conscious buyers, though it doesn’t sell cars in the U.S. because of tariffs.

Kia, Toyota and Volkswagen have reported better sales growth, though all are coming off smaller bases than Tesla or BYD.

Analysts are worried that E.V. demand may cool further . Government credits for car buyers in the U.S. and Europe have expired in recent months. And concerns about charging times and battery range are pushing some consumers to pick hybrid-engine vehicles or stick with less expensive gasoline-powered ones.

Is it a blip? Over all, E.V. sales were flat in the fourth quarter of 2023, despite being up 40 percent year on year, “suggesting a sharp deterioration in growth,” Tom Narayan, an auto analyst at RBC Capital Markets, wrote to investors on Tuesday.

HERE’S WHAT’S HAPPENING

President Biden talks trade, TikTok and more with China’s Xi Jinping. In a call on Tuesday, the two leaders covered trade policies , the detainment of U.S. nationals and China’s support of Russia despite its full-scale invasion of Ukraine. The conversation precedes Treasury Secretary Janet Yellen’s visit to Beijing this week , where she is expected to address China’s dominance over raw materials essential for E.V.s and solar panels.

Fed officials warn that they’re in no hurry to cut interest rates. Two voting members of the central bank’s rate-setting committee, Loretta Mester and Mary Daly, said that they saw three cuts as likely this year — but added that, with the economy growing, there’s no rush to do so. Investors on Wednesday penciled in a 66 percent chance of a June cut, down slightly from the prior week.

Taiwan is rocked by its worst earthquake in decades. The 7.4-magnitude tremor , which struck shortly before 8 a.m. local time, occurred in the country’s east coast but could be felt in the capital, Taipei; at least nine are dead and hundreds are wounded. TSMC , the world’s biggest maker of advanced semiconductors, briefly evacuated some factory workers, amid worries about potential harm to the country’s chip manufacturing sector.

Can going private fix Endeavor’s problems?

After years of complaining that public investors didn’t understand what they were building, Endeavor executives, led by the Hollywood superagent Ari Emanuel, are finally getting their wish: a breakup with Wall Street.

But will taking Endeavor private — with the help of Silver Lake, its longtime financial partner — actually make help the company grow?

Endeavor was built on serial deal making. Emanuel and his team believed that their company could be not just be a talent agency, but an entertainment hub that supplied media companies with content (and the talent that created it) as well.

With the help of Silver Lake, which invested in Endeavor in 2012, Emanuel bought an array of assets: IMG, the sports- and fashion-focused talent agency, Professional Bull Riders; New York Fashion Week; and sports-betting technology.

The crowning achievement was buying Ultimate Fighting Championship and World Wrestling Entertainment, combining them into TKO Group, a publicly traded combat-sports company that Endeavor controls.

But investors were unimpressed, with Endeavor often trading below its I.P.O. stock price.

Going private means that Emanuel and Silver Lake are freer to pursue their vision: “We are all in on working with the Endeavor team and our trusted anchor investors to create value by accelerating growth at scale,” Egon Durban , Silver Lake’s co-C.E.O., said of the deal announced on Tuesday, which values the company at $13 billion, including debt.

The big question: Will Endeavor’s strategy make sense now? Profiting from content deals hasn’t always worked out. TKO’s stock tumbled after W.W.E. scored a better rights agreement for its SmackDown franchise.

But Endeavor and Silver Lake appear to be betting that they’ll benefit from giving their premium strategy more time to play out. They also believe that the sum of Endeavor’s parts are greater than yesterday’s deal valuation.

Silver Lake has gotten rich from this kind of deal before. It partnered with Michael Dell to buy out other investors in Dell, then a mostly unloved maker of personal computers. That deal was bitterly contested by the activist financier Carl Icahn, who accused the two of buying the computer maker on the cheap .

Dell Technologies eventually returned to the public markets — and Dell, Silver Lake and their partners are believed to have made a profit exceeding $40 billion .

The deal hurdles facing Paramount’s board

Merger talks between Paramount, the media company that’s the home of the “Top Gun” franchise and Nickelodeon, and the studio Skydance are heating up, with the two discussing entering into exclusive talks , DealBook’s Lauren Hirsch and The Times’s Benjamin Mullin report.

Such a move would be a big step forward in a process dogged by uncertainty for months. But many questions, and obstacles, remain.

The Paramount special board committee is under extra pressure to be fair. Shari Redstone controls Paramount via special shares held by National Amusements, her family’s holding company. Under the terms being discussed, Skydance would buy National Amusements and then combine with Paramount.

But virtually every time there’s a controlling shareholder, companies appoint a group of directors to ensure that any offer treats all investors fairly.

Given the shareholder litigation over the merger of Viacom and CBS that created Paramount, the special committee here has been especially cautious, DealBook hears. Some investors have expressed concern that a Skydance deal would benefit Redstone more than other shareholders.

Then there’s the question of cultural fit. Personality matches matter in any deal, but are especially pertinent when it comes to media companies that tend to have executives with outsize personas.

How will that play out in the potential union of an old-school company like Paramount and Skydance, a much-younger studio led by David Ellison , the son of the tech billionaire Larry Ellison?

Don’t forget that there are others interested in Paramount. They include the investment firm Apollo, which has offered $11 billion to buy Paramount’s movie studio, and the media mogul Byron Allen.

“I wanted to have you on a podcast, and Apple asked us not to do it.”

— Jon Stewart , a host of “The Daily Show.” On his most recent episode, he told his guest, the F.T.C. chair and aggressive antitrust enforcer Lina Khan, that when he had an Apple TV+ show, the tech giant urged him not to interview her.

Behind Biden’s love-hate approach to corporate America

President Biden has taken aim at big companies in recent months on issues including rising prices, tax breaks and big mergers. But he has also introduced huge corporate subsidies via his climate and manufacturing laws, and presided over an enormous increase in oil production.

In short, he has sought to walk a fine line between challenging corporate America and courting it to help carry out his policy goals, The Times’s Jim Tankersley writes. His re-election chances may depend in part on how well he manages that balance.

Democratic pollsters have encouraged Biden to hit big companies for political gain, particularly by emphasizing his plans to raise corporate taxes and call out companies for so-called shrinkflation and junk fees.

The hope is that those attacks will expose a vulnerability for Donald Trump, whose policies as president largely benefited companies — and who is currently leading Biden in key battleground states , according to a new poll.

Biden has also sought counsel from C.E.O.s. He regularly asks their advice on issues including supply chains and worker training. Key initiatives like infrastructure improvements and increased domestic manufacturing rely on cooperation with the private sector.

Not all corporate leaders buy his approach. C.E.O.s including Jamie Dimon of JPMorgan Chase and Ken Griffin of Citadel have criticized Biden’s economic policies, while oil and gas executives have denounced an administration pause on the permitting of new liquefied natural gas export terminals.

Some may favor the likely chaos of a potential Trump return. “You can look at a Trump administration with a lot more uncertainty, but directionally, the regulatory effort was moving to lighten the regulatory costs,” Neil Bradley, the chief policy officer at the U.S. Chamber of Commerce, told The Times.

While the Biden administration has been clear about what regulations will look like, they’ll still be onerous, Bradley added. “And so, interestingly, there’s a lot of people saying, ‘The chaos is better,’” he said.

THE SPEED READ

Shares in the power business GE Vernova began trading on Tuesday, completing the breakup of General Electric. (WSJ)

Hunterbrook Capital , a hedge fund that is funding a media operation to produce investigations it can trade on, has raised $100 million. (FT)

Yahoo is buying the technology behind Artifact , the artificial intelligence news start-up founded by co-founders of Instagram. (The Verge)

Meet Don Hankey, the California billionaire who is covering the $175 million bond in the civil fraud judgment against Donald Trump. (WaPo)

“The Supreme Court May Give Us Another 2008 Financial Crisis ” (The Lever)

Best of the rest

Office vacancies in the U.S. rose to a record 19.8 percent in the first quarter, according to Moody’s, as the commercial real estate sector remains under pressure. (Bloomberg)

Ratings for Monday night’s women’s college basketball matchup between the University of Iowa, featuring the phenom Caitlin Clark, and L.S.U. outperformed several of last year’s N.B.A. finals games . (ESPN)

Taylor Swift is now a billionaire , at least according to a new estimate. (Forbes)

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Andrew Ross Sorkin is a columnist and the founder and editor at large of DealBook. He is a co-anchor of CNBC’s "Squawk Box" and the author of “Too Big to Fail.” He is also a co-creator of the Showtime drama series "Billions." More about Andrew Ross Sorkin

Ravi Mattu is the managing editor of DealBook, based in London. He joined The New York Times in 2022 from the Financial Times, where he held a number of senior roles in Hong Kong and London. More about Ravi Mattu

Bernhard Warner is a senior editor for DealBook, a newsletter from The Times, covering business trends, the economy and the markets. More about Bernhard Warner

Sarah Kessler is an editor for the DealBook newsletter and writes features on business and how workplaces are changing. More about Sarah Kessler

Michael de la Merced joined The Times as a reporter in 2006, covering Wall Street and finance. Among his main coverage areas are mergers and acquisitions, bankruptcies and the private equity industry. More about Michael J. de la Merced

Lauren Hirsch joined The Times from CNBC in 2020, covering deals and the biggest stories on Wall Street. More about Lauren Hirsch

Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors.   More about Ephrat Livni