Finance is a term for matters regarding the management, creation, and study of money and investments. Specifically, it deals with the questions of how an individual, company or government acquires money – called capital in the context of a business – and how they spend or invest that money. Finance is then often divided into the following broad categories: personal finance, corporate finance, and public finance.
At the same time, and correspondingly, finance is about the overall "system" i.e., the financial markets that allow the flow of money, via investments and other financial instruments, between and within these areas; this "flow" is facilitated by the financial services sector. Finance therefore refers to the study of the securities markets, including derivatives, and the institutions that serve as intermediaries to those markets, thus enabling the flow of money through the economy.
A major focus within finance is investment management – called money management for individuals, and asset management for institutions – and finance then includes the associated activities of securities trading and stock broking, investment banking, financial engineering, and risk management. Fundamental to these areas is the valuation of assets such as stocks, bonds, loans, but also, by extension, entire companies.
Although they are closely related, the disciplines of economics and finance are distinct. The economy is a social institution that organises a society's production, distribution, and consumption of goods and services, all of which must be financed.
Given its wide scope, finance is studied in several academic disciplines, and, correspondingly, there are several related professional qualifications that can lead to the field.
The origin of finance can be traced to the start of civilisation. The earliest historical evidence of finance is dated to around 3000 BC. Banking originated in the Babylonian empire, where temples and palaces were used as safe places for the storage of valuables. Initially, the only valuable that could be deposited was grain, but cattle and precious materials were eventually included.
During the same period, the Sumerian city of Uruk in Mesopotamia supported trade by lending as well as the use of interest. In Sumerian, “interest” was mas, which translates to "calf". In Greece and Egypt, the words used for interest, tokos and ms respectively, meant “to give birth”. In these cultures, interest indicated a valuable increase, and seemed to consider it from the lender's point of view. The Code of Hammurabi (1792-1750 BC) included laws governing banking operations. The Babylonians were accustomed to charge interest at the rate of 20 per cent per annum.
Jews were not allowed to take interest from other Jews, but they were allowed to take interest from Gentiles, who had at that time no law forbidding them from practising usury. As Gentiles took interest from Jews, the Torah considered it equitable that Jews should take interest from Gentiles. In Hebrew, interest is neshek.
By 1200 BC, Cowrie shells were used as a form of money in China. By 640 BC, the Lydians had started to use coin money. Lydia was the first place where permanent retail shops opened. (Herodotus mentions the use of crude coins in Lydia in an earlier date, around 687 BC.)