Finance is nothing but it is an organization from where we can buy an amount or we can invest our amount. Generally, finance is the study of managing funds and it deals with borrowing, investing, budgeting, forecasting, etc. Finance systems are majorly classified into debit finance and equity finance.
- Debit finance is money lending for doing a business. Here the borrower should pay the monthly interest for the loan. A borrower is not the real owner of money because he is borrowing the money from the finance institute. Debit finance is again classified into three categories namely short term, medium term, and long term.
Short-term Debit finance includes the short period includes a period of fewer than three months. Here the purpose of getting a loan is for paying daily wages or buying some new materials for industrial purposes. Short-term Debit finance is the temporary method of buying a loan.
Medium-term debit finance includes more than a period of three months. People choose this type of debit finance mainly for the construction of a company or an industry and the start-up.
Long-term finance includes more than a period of one year. It includes a larger amount of interest. People choose this type of finance mostly for buying real estate, property.
- Equity finance is the proper way of increasing our capital for business. This is the major difference between debit finance and equity finance.
What are the other types of financial systems?
Apart from debit and equity finance, there are many types which are public finance, private finance, personal finance, corporate finance.
1. Public finance deals with the public authorities rather than private finance or personal finance. A bank is the main public authority where we can save our money.
2. Personal finance denotes an individual point of view. It includes the area of income, savings, spending, investing’s, and protection. All these five factors are the pillars for personal finance. Income is the way we earn money for our monthly work. Income satisfies all our needs. To satisfy our needs than at least one in a family should have an income. Spending makes us buy our necessary things. Without income, spending is not possible. If we have a surplus of money then we go for savings. Savings makes our life bright and colorful. Savings are needed for our future. Investment means investing our money in any recognized organization. Here we invest our money in a bank. Keeping our income in the bank is safe and it is legally approved and protected.
3. Corporate finance includes the financial status for the successful running of a corporation.
4. Private finance is also an alternative method of corporate finance.
What are the major components of the financial system?
The major components include the financier, financial institutions, financial assets, and financial services. These four components act as a basement for the financial system. The development of a nation depends upon the economy of a country. Hence these financial institutions are playing a vital role in our economic development.