October 20, 2021

Theories Of Modern Finance

2 min read

Finance is the act of channeling monies from investors and savers to entities which require it. This could be in the form of borrowing money, creating financial instruments, or investing in certain business ventures. In fact, all of us are finance experts at one point or another. Some of us may even be financial planners, while others may be accountants. Whatever the case, finance is the way our money is channeled so that money can be made to grow, making individuals and businesses profitable.

Finance has played a crucial role in all modern financial theories. Money is used to buy the assets that are created with the investments, thereby creating a wealth effect. There are two schools of thought in finance; namely the static approach and the dynamic approach. The static school suggests that because of the laws of thermodynamics, everything in the world will go up or down in value in a deterministic manner unless human intervention causes some change, and the other assumes that changes in the world always alter the value that people and businesses place in it due to economic laws which are beyond the control of any human being. The debate will continue until economics as a whole is better understood by everyone.

Finance theory pertains to the field of banks, financial institutions, lending institutions, central banks, pension funds, and the like, in which investments and lending practices are guided by theories of modern finance. Theory is not only limited to economics but also encompasses other fields such as policy, ethics, technology, and risks. It is also an important part of the field of business administration. A strong understanding of finance helps make one eligible for all kinds of jobs in banking, the police force, and law enforcement, while also helping create better consumer and investor protections within the United States and abroad.

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