Economics And Finance Even in everyday language, the terms economy and Finance are often used. In the first case, economics is understood as the science that studies the relative modes of allocation of limited resources between alternative uses to maximize the satisfaction of each. The media keep talking about the economic and financial crisis that is raging in France, Europe, and worldwide. But although economics and Finance seem to refer to the same thing, they are two quite distinct concepts. There is an economic situation on one side and a financial crisis. This article explains the difference between economics and Finance.
What Is An Economy
The word economy comes from the Greek Oikos, the house also understood as family property, and νόμος: nomos, norm or law. This term designates the use of scarce resources to best meet individual and collective needs by organizing expenditure and a system for managing activities of this nature, set up for this purpose by a group of people, institutions and organizations. Hence, the concept of an economic system is the network of interdependencies and interconnections between operators and economic subjects.
The financial situation relates to the property belonging to natural and legal persons, in short, to society. The budget is based on exchanges between buyers and sellers. Economics deals with the production, distribution, the consumption of goods or services, the transfer of wealth and all other factors that affect them. It is about analyzing how economies work and how agents: people interact within the market and make decisions. It explains how limited resources: scarce, are distributed among many consumers so that efficient use is taking place.
What Is A Finance
Finance is the study of optimal advantage allocation, that is, the organization or individuals’ investments to obtain the highest possible returns over time. It is nothing but the arrangement and management of business funds, and it is the lifeblood of the business world without which no entity can survive for long. And also It mainly focuses on money flows, interest rate fluctuations, price rise and fall, market changes, etc. It revolves around three elements: money, time and risk.
Finance can also be understood as a science that studies how money is distribute among alternative uses to maximize its satisfaction. More specifically, Finance is understood as that economic discipline that deals with the processes by which firms, bodies, organizations and states manage relative monetary flows over time. The financial situation concerns the capacity of natural and legal persons, of society as a whole, to make payments, purchases and reimbursements. Finance is based on the acquisition, management and use of capital.
Types Of Financing
There are different types of financing, which are classified as follows: corporate financing, personal financing, international financing and finally, public financing. Corporate Finance also referred to as Corporate Finance or Corporate Finance, relates to seeking and using financial resources by businesses. On the other hand, Personal Finance relates to the debts and receivables that are the individual’s responsibility. On the other hand, International Finance deals with all flows of money exchanged between countries, from origin to operational financial transactions between individuals, companies, and international public administrations.
What Is The Relationship Between Economics And Finance?
It is possible to have an excellent economic situation but a bad financial situation. This is the case if, for example, a person has significant assets but does not have the necessary cash to settle his debts. Conversely, we can have an excellent financial situation if we have enough money to pay our debts but a dire economic crisis if the obligations are more significant than the assets we hold. The financial system is the central system of market economies. Economic relations are based on the banking sector and payment systems. In reality, Finance can promote economic development in 4 ways:
- by pooling savings through diversification and risk management
- And also by simplifying the exchange of goods and services thanks to the reduction of transaction prices
- by optimizing the distribution of capital thanks to the dissemination of information on investment opportunities
- by strengthening the willingness of investors to finance new projects through ex-post controls and corporate governance.
The general idea is that a well-developed financial system is only one of many consequences of the overall process of economic development. Another idea assumes that the size of the financial sector is an indicator of economic growth. Be that as it may. What is certain is a positive correlation between the size of the financial industry and economic development.
What Are The Main Differences Between Economics And Finance?
The economic situation is assess based on all assets. While the financial crisis is calculate according to a debtor’s repayment capacity and solvency. Therefore, even though they are closely related, they have different orientations. The heritage mustn’t be over whelms with debts to enjoy an ideal economic situation. And to enjoy a comfortable financial situation. You have to avoid going into debt or having enough money to pay it off without constraint. Therefore, regularly following financial and economic news is recommend to promote its economic and financial situation. The main differences between economics and Finance are given below.
Economics is concerned with the production, consumption. And exchange of goods and services and the transfer of wealth. In contrast. Finance is concerned with the optimal use of the organization’s funds to get a better return on your investment.
- The economy is not part of Finance, but Finance is part of the economy.
- Economics mainly focuses on the monetary value of time, i.e. the sum of money; a person can spend to buy “time.” While Finance focuses on the time value of money, i.e. a rupee today is worth more than a rupee a year later.
- Economics explains the factors behind the surplus or deficit of goods and services, which affects society. In contrast, Finance explains the reasons behind fluctuating interest rates, changes in commodity prices, any commodity, cash inflows, outflows, etc.
- Economics is a social science that studies the management of goods and services. Still, Finance is a science that studies the disposition and management of funds: loans, savings, expenses, investments, etc.
- Economics aims to optimize resources of limited nature, while Finance aims to maximize wealth.