ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

beginners guide to understanding finance

Updated on January 5, 2011

What is finance?

It's all about money.

In particular the management of money. This can be personal money, business money or public money.

From a young age we begin to learn the concepts of personal financial management through pocket money. We learn the importance of saving money, we often learn how we have to work to earn that money which is an exchange of time.

As we get older the complexities of finance are increased somewhat with time. Instead of washing dads car for your weekly allowance along with the independnce of adulthood comes the onset of more responsibilities and more financial skills are required.

What is covered?

This is a beginners guide. So we touch briefly on the following subjects.

  • Time
  • Money
  • Risk
  • Credit
  • Debt
  • Banking
  • Budgeting
  • Stocks

Links are provided for further reading on all subject matters covered. This page will bring you up to speed and help you to further understand the complexities of finance. This page is an ideal starting point.

Money - What is it?

Money is put quite simply the medium of exchange. It's what we use as an exchange in a transaction. It's not the only medium of exchange for transactions. You may have swapped a book you read for one someone else has read before, therefore that book would have been the medium of exchange but not everyone is going to want your old book. The creation of money in its current form provides us with a means of having a mutual acceptible form of exchange. You can trade your money for a book, for food, for anything, because someone else out there will always want money.

You can always read more about the history of money by clicking the link.

Credit - What is it?

Credit is the process in which one party will give access to resources that the other party requires without having to be paid in full immediately. Whilst there is a saying that money makes the world go round if this were true then credit would be equally as important. Without credit financial institutions and life as we know it would fall into anarchy.

Before credit is given it's logical to make a risk assesment based on the the third parties ability to repay that debt.

Debts - What are they?

If credit is where you one party offers resources without immediate payment then debt is what you are in once you have obtained those resources. The majority of the world as individuals are in some form of debt and most the countries, corporations and businesses. Our assets may outweigh our debts but we are still most often in debt.

To obtain debt we need to have some form of credit worthiness to begin with, we gain good credit rating by paying off our debts in a timely fashion.

How is time a factor in finance?

 Time is another detrimental factor of finance. As time passes inflation increases, commodity and portfolio values fluctuate. Watch the short 1 minute video below which explains condenses this subject very well.

Understanding the time value of money

Financial Risk - What is it?

The term 'financial risk,' would be used to describe risk associated with any form of financing, so in itself would be a deep and complex subject that would require at least its own page. Some of the main topics are as follows:

Credit Risk

This will sometimes be referred to as default risk and its whereas discussed the creditor makes a decision on whether the prospective debtor can and will pay back the sum owed. Credit risk can and should be taken seriously as it will result in revenue losses from interest received a decrease in cash flow and an increase in collection costs. In business credit policies are formed to deal with deafulters.

Market Risk

In business this relates to the decrease in value of an investment or trading portfolio. The individual factors of which can be attributed to equity, interest, commodity.

Liquidity Risk

This is where the risk lies in the inability to trade quickly enough in order to make a profit.

Banking - What is it?

The system of trading money in which involves safeguarding deposits and making money available for borrows through loans or mortgage. Banking in this form can actually be traced back to the 13th century.

Banks earn money through the interest charged on borrowing money and also pay interest to people who entrust the bank with their money.

Understanding money and banking

Glossary of terms

Trading Portfolio - The trading portfolio comprises those financial instruments which are held to obtain short-term transaction results, to facilitate transactions on behalf of clients or to hedge other positions in the trading portfolio.

Default - A default is when the debtor fails to payback the monies promised to the creditor

Comments

    0 of 8192 characters used
    Post Comment

    • profile image

      George Guogas 

      11 months ago

      Interested in the information thanks can you email that to me.

      Thank You

    • profile image

      Rahul 

      5 years ago

    • mrpdg profile imageAUTHOR

      mrpdg 

      7 years ago

      Thx muchly simone

    • Simone Smith profile image

      Simone Haruko Smith 

      7 years ago from San Francisco

      Great intro! I love the way you've organized the Hub and included a nice image and some videos - as well as helpful sidebars. Well done!

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)