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Finance

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The main techniques and sectors of the financial industry

Main article: Financial services

An entity whose income exceeds its expenditure can lend or invest the excess income. On the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing its expenses, or increasing its income. The lender can find a borrower, a financial intermediary such as a bank, or buy notes or bonds in the bond market. The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary earns the difference for arranging the loan.

A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity.

Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance) and by a wide variety of other organizations, including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments and methodologies, with consideration to their institutional setting.

Finance is one of the most important aspects of business management. Without proper financial planning a new enterprise is unlikely to be successful. Managing money (a liquid asset) is essential to ensure a secure future, both for an individual and for an organization.

In corporate finance, a company's capital structure is the mix of financing methods it uses to raise funds. One method is debt financing , which includes bank loans and bond sales.

Another method is equity financing - the sale of stock by a company to investors. Possession of the stock gives the investor part ownership in that company, in proportion to the number of shares the investor owns. In return for the stock, the company receives cash, which it may use to expand its business or to reduce its debt.

The investors, in both bonds and stock, may be institutional investors - financial institutions such as investment banks and pension funds - or private individuals, called private investors or retail investors .

Personal finance

Main article: Personal finance

Questions in personal finance revolve around

• How much money will be needed by an individual (or by a family), and when?
• Where will this money come from, and how?
• How can people protect themselves against