How Finance and Economics are related?

The finance and economics are taken as the separate subjects while in actual they are interrelated disciplines that tend to affect each other in many other ways. The economics is the social science and involves the studies of consumption, production and distribution of the goods and services. It includes other things also recession, inflation and supply and demand. It gives the explanation of the way the government taxes and spends. It helps in teaching the effects of the events as well as the policies on the conditions of the business. It helps in giving the investors a tool to use when they are analyzing the markets and the companies. The scope and the career in the economics involve research and teaching. The banking institutions or the companies employ economists in order to forecast the inflation, growth, interest rates etc. Some of the investors listen closely to what economists have to say regarding the markets and what are the do’s and do not’s during the ups and downs in the companies or the market. The finance is regarded as the offshoot of economics in many aspects.

The individuals with the economic backgrounds have made some of the achievements that are notable. The finance deals with the study of the interest rates, prices, flow of money and the financial markets. Many billions of the dollars are at stake during pricing of the loans, insurance products, investments etc. The finance helps to provide the means in order to understand the valuation and the pricing of the cash flow in the future. It also helps business managers and the investors in evaluating the proposals and allocating capital. The finance degrees are common among the fund managers and the bankers. The basic part of the finance includes the determining of the fair value for the products of the investments of many types. The insurance brokers and the commercial bankers have the finance backgrounds and they need this concept to make the planning in the proper way. The economics have been more concerned with the big picture which includes how the country is doing financially however on the other hand finance puts focus on industries and companies. Both the concepts are equally important and both have their own applications. Firstly putting impact on the economics it is stated that economics is the social science that studies the concept of the consumption, production and distribution of the goods and services with the goal of explaining the work of economies and the way the agents interact. It is mostly labelled as the social science however treated as the liberal arts. It is very quantitative and math oriented when taken in practice. The economics have mainly two branches which includes macroeconomics and microeconomics.

The macroeconomics is the branch that gives the detail study of the how aggregate the economics behaves. The variety of economy wide phenomena is examined thoroughly like national income, inflation, gross domestic production or GDP along with the changes in the unemployment. The microeconomics is the study of the economic tendencies or what is about to happen when the individuals make the certain types of the choices or on the change of the factor of the production. The microeconomics put focus on the smaller factors that further effects the choices that are made by the companies and the individuals. The microeconomics also gives the explanation of the things to do when the certain conditions gets changed. In case if the manufacturer increases the price of the car the consumer will buy fewer than before. If the copper mines get collapsed the price of the copper will get increased due to the restricted supply. There are many uses of the economics and it has various applications which help to study the reaction to the changing conditions. When the economists succeed in their goals to understand how the producers and the consumers react to the changing situations. The economics is very helpful in providing the guidance and influence to policy making process at the national level. There are real consequences how government can approach the regulation, taxation and government spending. Economics helps to offer analysis and insight regarding these types of the decisions. The economics can help investors to understand the potential ramification of national policy on business conditions. The economics can be considered as the tool for predicting macroeconomics condition and also help to understand the implications of the predictions on the stocks companies and financial markets. The economists are also employed in investment banks, consultant firms and other corporations. The forecasting of the growth is also done by the economists which includes the GDP, inflation, interest rates and overall conditions of the market. The economists provide the projections and analysis that assist with the sale of the product of the company. The economics can be used by the participants of the markets to help understand the causes and likely results of the events of the market. it also deals with the effects on the various sectors, companies and the complete business cycles.

The applications includes understanding how changes in national income, inflation and the long term growth of the economy. The interest rate put impact on the markets and also the stocks. An important area of the focus for the economists is to determine the changes in the monetary policies by the different banks. The macroeconomics is used in tracking of the GDP, inflation and deficits to help investors to make the more informed decisions. The microeconomics helps the investors to see the reason for the fall in the price of the products. It also helps to explain the reason for forcing the company to set higher minimum wage in order to hire the fewer workers. Although economics and the finance are taught as well as presented as the separate disciplines they are interconnected and interrelated with each other to the great extent. These both the studies are really cared about because market is influenced by these both to the great extent. The difference between the both the studies are necessary to be kept in mind in order to have the complete knowledge to run a business properly. The finance in many aspects is an offshoot of economics and it describes the creation, management and study of the money, credit, investments, liabilities and the assets that make the set up of the financial systems. The study of finance can be divided into the three categories which include the public finance, corporate finance and personal finance. The study of finance focuses on the study of the prices, interest rates, financial markets and money flow etc. The finance has the power to centre on the topics like time value of the money, cost of the capital, rates of return and optimal financial structures including the quantification of the risks. The process of the finance involves managing of the assets, revenues, liabilities and debt for a business. The businesses get finance with the help of the various types of the means that ranges from the equity investments to the credit arrangements. A firm can take loan from the bank or also arrange a line of the credit. In order to acquire and manage debt properly company can expand and one can get the maximum profit. The personal finance defines all the financial decisions and activities of an individual that includes mortgage, budgeting, insurance and retirement planning. The public finance includes the tax systems, budget procedures, stabilization policy and instruments and other government concerns. The finance is the best option that can be used for the career. A degree in the finance is a common denominator among all who work as the bankers or fund managers. The finance can be a pathway to senior management of corporations and the companies. In the markets also the concept of the finance is very important and critical one. It involves the value of the financial instruments that include determination of fair value of wide range of the products that are used for the purpose of the investment. It includes the use of the models of the stock pricing that includes CAPM or capital asset pricing model and the other option model that includes Black Schools. The finance also helps in determining the optimal dividend or debt policy for a corporation or the proper asset allocation strategy of an investor. It can be concluded that the finance put impact on the markets with the constant stream of the products of new types. In the wake of Great Recession many derivatives and advances financial products have been maligned and many of the instruments were made to address and solve the needs and demands of the market. In order to hedge the risk for investors derivatives can be used hence as the result protecting the system of the finance from the harm of any kind during the event of the recession. Hence the bottom line is that two disciplines seem to be converging in some respects. Both the economists and finance professionals are employed in the financial markets that are in government as well private sectors. There will always be the separation at the fundamental level however both are important to economy, markets and the investor. On the other hand the financial economics is also the branch of the economics that can analyze the use of resources in the market. It is useful when the decisions are made under the circumstances of the uncertainty. The financial decisions must be taken into the account future events which are related to the portfolios, accounts future events or the markets as the whole.

The financial economics helps to employ the economic theory which in turn help to evaluate the time, risk, information and opportunity cost that can create incentives for particular kind of the decisions. The financial economics involves the creation of the modes in order to test the different variables which affect the particular kind of the decisions. This type of economics is useful when the situation is not certain and anything can happen at any instance of the time. The risk level is also maintained as the decisions taken may prove to be harmful at anytime. Irrational behaviour of parties is taken into account in financial economics as the potential risk factor. The traditional economics focus on the exchanges where the money is one however only one item is traded. The economics put focus on exchanges in which money of one type appears on the both side of the trade. The two most prominent angles to the concept of the financial economics are discounting and risk management and diversification. The decisions making over the time recognizes the fact that value of money has been lowered over the time. Hence the money must be discounted to allow for the risk and inflation. The failure to discount can result into the problems like that of the under funded pension scheme. Many advertisements for stock market remind the buyers that the value of the price is subjected to change which include rising and falling of the prices. In spite of all this the stock yields high return on the average which helps in compensation of the risk overall. The financial institutions are always looking for the ways of hedging or insuring the risk. It is sometimes possible to lower highly risky asset and to make the overall risk to be low. This economics builds heavily on the microeconomics and concepts of the basic accounting. It also tells about the familiarity with basic statistics and the probability. These types of the tools are standardized and they are used to measure and evaluate the risk. The important part of the portfolio is the risky assets. The financial economists can be differentiated from the economists that are traditional in the nature. It helps in concentrating on the monetary activities where the time, options and information play the important roles. The financial decisions must be often taken in account the future events so that all the risk can be covered. A particular decision may result into the both incentives or the disincentives and hence the risk can be evaluated with the help of financial economics.