What is Finance

Finance! Big word, with signs of money all around it; but what does finance really mean, especially if you’re wondering if it’s a career option for you?

Well, yes, Finance is all about money!

Let’s take the analogy of clothing. It starts life as raw material – cotton or synthetic fibre. This gets traded wholesale, between authorised market participants. If you’ve visited a wholesale ‘mandi’, you’ll know what I mean. There are licensed participants, and rules as to how much, when, what pricing, etc. The fibre then gets converted into more complex material – cloth, and then different types of clothing.  There’s a market for that too, with similar rules.

OK, so how does that apply to Finance?

explain finance

The raw material here, is money. There are licensed participants who act as ‘Intermediaries’ – they collect money from those who wish to save it, and sell it onwards, to those who need it.

Then, there are complex instruments, which represent money in various ways – such as stocks, bonds, derivatives. We need not at this stage, understand how they are designed. It’s enough to understand that, these get created, bought and sold, too.

The critical difference between our cloth and money analogies is, that money is the life blood of daily living. Every one needs it. That’s why, it’s a huge market and impacts every one. From an individual to a country, everyone participates in some way or the other.

That creates the finance industry and the career options within it.

what does a bank do?

Banks are the critical intermediaries between depositors and borrowers.  While depositors of money are mainly individuals, lending is to both individuals and large quantity borrowing is by businesses and governments. Therefore, there are career options in both areas – the management of deposits, also called ‘branch banking’, and the lending area. The evaluation of whether a business is capable enough to repay a loan, is called ‘credit analysis’. This is a popular finance career option.

We’ve discussed various career options in Banking for a graduate in the below article:

Careers in Banking after graduation

We also mentioned that financial instruments get bought and sold. Depending on the type of instrument, there are different financial markets. The market which you will have heard of, is the stock market. That’s because, it has large individual participation. But, there are huge markets which you will not have heard of – the currency market and the bond or debt markets are examples.

Types of financial markets

While we won’t spend time on all the markets, let’s quickly understand WHAT a share is – I’ve had MBAs in finance, unable to explain it.

Stock, by the way, is a collective term for shares – many shares, make stock.

Very simply put, a share is a piece of a company. So, if a company’s ownership is shared equally between a thousand people, and you own ten shares, you’ll own one percent of that company.

So, what is the stock market?

Large companies, offer a majority or all of their shares, to any member of the public who is interested. They are called ‘public limited’ companies.

Investors – individuals and companies, Trusts, etc., – buy and sell these shares, via an intermediary called the ‘Exchange’. In India, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two main Exchanges.

Finance career options exist in both trading and the research, which goes into making a trading decision. For example, to decide whether a stock is priced well and should be bought or sold, the economy of a country, the state of that particular industry (say, steel), the past and potential financial performance of that particular company, all need to be researched and tracked on an ongoing basis.

career options in finance apart from banking

Obviously, to make sure everyone follows the rules, you have the regulators. The banking regulator, is generically called ‘The Central Bank’.

In India, the Central Bank is the Reserve Bank of India, or RBI. In the USA, it is the Federal Reserve, called ‘The Fed’.

The financial markets are regulated in India, by the Securities Exchange Board of India, or SEBI.

There are career options, in the regulatory bodies, too.

Why is a finance career seen as lucrative?

Frankly , like most such impressions (including Bollywood!), it’s only a few who make a lot of money – say, some trading roles. But for the large majority of roles, it’s decent money, not huge bucks. And those roles which pay huge bucks, also have huge risks – they’re the first to be sacked, when times are bad.

So, choose finance if you have an interest in it. Not just to ‘make money’  – that’ll make you miserable.  To understand if your interest is genuine and not just infatuation, read the business page of a good newspaper regularly; do a few fundamental online courses; and if possible, some live projects and internships.

How can a graduate get into investment banking

Related Articles

How can a graduate get into investment banking    Careers in banking after graduation    How to become a research analyst

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Finance and banking fundamentals    Corporate banking and credit analysis certification course    Branch relationship management certification course

What is Finance all about?

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