Areas of Finance

 1] Personal finance : 

Wealth management consultation—here, the financial advisor counsels the client on an appropriate investment strategy.

Further information: Financial planner and Investment advisory

Personal finance refers to the practice of budgeting to ensure enough funds are available to meet basic needs, while ensuring there is only a reasonable level of risk to lose said capital. Personal finance may involve paying for education, financing durable goods such as real estate and cars, buying insurance, investing, and saving for retirement. Personal finance may also involve paying for a loan or other debt obligations. The main areas of personal finance are considered to be income, spending, saving, investing, and protection. The following steps, as outlined by the Financial Planning Standards Board, suggest that an individual will understand a potentially secure personal finance plan after:

Purchasing insurance to ensure protection against unforeseen personal events;

Understanding the effects of tax policies, subsidies, or penalties on the management of personal finances;

Understanding the effects of credit on individual financial standing;

Developing a savings plan or financing for large purchases (auto, education, home);

Planning a secure financial future in an environment of economic instability;

Pursuing a checking or a savings account;

Preparing for retirement or other long term expenses. 

2] Corporate finance :

Further information: Strategic financial management

Corporate finance deals with the actions that managers take to increase the value of the firm to the shareholders, the sources of funding and the capital structure of corporations, and the tools and analysis used to allocate financial resources. While corporate finance is in principle different from managerial finance, which studies the financial management of all firms rather than corporations alone, the concepts are applicable to the financial problems of all firms, and this area is then often referred to as "business finance".

Typically, "corporate finance" relates to the long term objective of maximizing the value of the entity's assets, its stock, and its return to shareholders, while also balancing risk and profitability. This entails three primary areas:

1] Capital budgeting: selecting which projects to invest in—here, accurately determining value is crucial, as judgements about asset values can be "make or break".

2] Dividend policy: the use of "excess" funds—these are to be reinvested in the business or returned to shareholders.

3] Capital structure: deciding on the mix of funding to be used—here attempting to find the optimal capital mix re debt-commitments vs cost of capital. (This consists in understanding how much the firm has to generate to satisfy investors, and by minimizing the weighted average cost of capital (WACC) so that the value of the company increases.)

3] Investment management :

"The excitement before the bubble burst"—viewing prices via ticker tape, shortly before the Wall Street crash .

A modern price-ticker. This infrastructure underpins contemporary exchanges, evidencing prices and related ticker symbols. The ticker symbol is represented by a unique set of characters used to identify the subject of the financial transaction.

Main article: Investment management

See also: Active management and Passive management

Investment management is the professional asset management of various securities—typically shares and bonds, but also other assets, such as real estate, commodities and alternative investments—in order to meet specified investment goals for the benefit of investors.

As above, investors may be institutions, such as insurance companies, pension funds, corporations, charities, educational establishments, or private investors, either directly via investment contracts or, more commonly, via collective investment schemes like mutual funds, exchange-traded funds, or real estate investment trusts.

At the heart of investment management is asset allocation—diversifying the exposure among these asset classes, and among individual securities within each asset class—as appropriate to the client's investment policy, in turn, a function of risk profile, investment goals, and investment horizon (see Investor profile). Here:

• Portfolio optimization is the process of selecting the best portfolio given the client's objectives and constraints.
• Fundamental analysis is the approach typically applied in valuing and evaluating the individual securities.
• Technical analysis is about forecasting future asset prices with past data.

4] Risk management :

Crowds gathering outside the New York Stock Exchange after the Wall Street crash.

Customers queuing outside a Northern Rock branch in the United Kingdom to withdraw their savings during the financial crisis

Main article: Financial risk management

Risk management, in general, is the study of how to control risks and balance the possibility of gains; it is the process of measuring risk and then developing and implementing strategies to manage that risk. Financial risk management is the practice of protecting corporate value against financial risks, often by "hedging" exposure to these using financial instruments. The focus is particularly on credit and market risk, and in banks, through regulatory capital, includes operational risk.

• Credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments;
• Market risk relates to losses arising from movements in market variables such as prices and exchange rates;
• Operational risk relates to failures in internal processes, people, and systems, or to external events (these risks will often be insured).

Financial risk management is related to corporate finance in two ways. Firstly, firm exposure to market risk is a direct result of previous capital investments and funding decisions; while credit risk arises from the business's credit policy and is often addressed through credit insurance and provisioning. Secondly, both disciplines share the goal of enhancing or at least preserving, the firm's economic value, and in this context overlaps also enterprise risk management, typically the domain of strategic management. Here, businesses devote much time and effort to forecasting, analytics and performance monitoring. 

5] Quantitative finance :

Quantitative finance—also referred to as "mathematical finance"—includes those finance activities where a sophisticated mathematical model is required, and thus overlaps several of the above.

As a specialized practice area, quantitative finance comprises primarily three sub-disciplines; the underlying theory and techniques are discussed in the next section:

• Quantitative finance is often synonymous with financial engineering. This area generally underpins a bank's customer-driven derivatives business—delivering bespoke OTC-contracts and "exotics", and designing the various structured products and solutions mentioned—and encompasses modeling and programming in support of the initial trade, and its subsequent hedging and management.
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• Quantitative finance also significantly overlaps financial risk management in banking, as mentioned, both as regards this hedging, and as regards economic capital as well as compliance with regulations and the Basel capital / liquidity requirements.
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• "Quants" are also responsible for building and deploying the investment strategies at the quantitative funds mentioned; they are also involved in quantitative investing more generally, in areas such as trading strategy formulation, and in automated trading, high-frequency trading, algorithmic trading, and program trading.