Editing Finance (section)

==The financial system==

[[File:1925.B&O.Railroad.Stock.Louis.Brandeis.jpg|thumb|right|[[Bond (finance)|Bond]] issued by The Baltimore and Ohio Railroad. Bonds are a form of borrowing used by corporations to finance their operations.]]
[[File:Radium Hill share certificate.jpg|thumb|right|[[Share certificate]] dated 1913 issued by the Radium Hill Company]]

[[File:NY stock exchange traders floor LC-U9-10548-6.jpg|right|thumb|NYSE's stock exchange [[trader (finance)|traders]] floor in 1963, before the introduction of electronic readouts and computer screens]]
[[File:Chicago bot.jpg|thumb|right|250px|[[Chicago Board of Trade]] [[Maize#Commodity|Corn Futures]] market, 1993]]
[[File:A1 Houston Office Oil Traders on Monday.jpg|thumb|right|[[Price of oil#Speculative trading and crude oil futures|Oil traders]], Houston, 2009]]
{{Main|Financial system}}
{{See also|Financial services|financial market|Circular flow of income}}
As outlined, the financial system consists of the flows of capital that take place between individuals and households ([[personal finance]]), governments ([[public finance]]), and businesses ([[corporate finance]]). "Finance" thus studies the process of channeling money from savers and investors to entities that need it.{{efn|Finance thus allows production and consumption in society to operate independently from each other. Without the use of financial allocation, production would have to happen at the same time and space as consumption. Through finance, distances in timespace between production and consumption are then posible.<ref>{{cite journal |last1=Allen |first1=Michael |last2=Price |first2=John |title=Monetized time-space: derivatives – money's 'new imaginary'? |journal=Economy and Society |date=2000 |volume=29 |issue=2 |pages=264–284 |doi=10.1080/030851400360497 |s2cid=145739812 |url=https://www.tandfonline.com/doi/abs/10.1080/030851400360497 |access-date=3 June 2022 |archive-date=20 March 2022 |archive-url=https://web.archive.org/web/20220320050529/https://www.tandfonline.com/doi/abs/10.1080/030851400360497 |url-status=live }}</ref>}} Savers and investors have money available which could earn interest or dividends if put to productive use. Individuals, companies and governments must obtain money from some external source, such as loans or credit, when they lack sufficient funds to run their operations.

In general, an entity whose income exceeds its [[Expense|expenditure]] can lend or invest the excess, intending to earn a fair return. Correspondingly, an entity where income is less than expenditure can raise capital usually in one of two ways: (i) by borrowing in the form of a loan (private individuals), or by selling [[Bond (finance)|government or corporate bonds]]; (ii) by a corporation selling [[Equity (finance)|equity]], also called stock or shares (which may take various forms: [[preferred stock]] or [[common stock]]). The owners of both bonds and stock may be [[institutional investor]]s—financial institutions such as investment banks and [[pension funds]]—or private individuals, called [[private investors]] or retail investors. (See [[Financial market participants]].)

The [[lender|lending]] is often indirect, through a [[financial intermediary]] such as a [[bank]], or via the purchase of notes or [[Bond (finance)|bonds]] ([[corporate bonds]], [[government bond]]s, or mutual bonds) in the [[bond market]]. The lender receives interest, the [[Debtor|borrower]] pays a higher interest than the lender receives, and the financial intermediary earns the difference for arranging the loan.<ref>See e.g., {{Cite web|title=Financial system|url=https://www.suomenpankki.fi/en/financial-stability/the-financial-system-in-brief/|last=Bank of Finland|author-link=Bank of Finland|access-date=2020-05-18|archive-date=2020-06-02|archive-url=https://web.archive.org/web/20200602105013/https://www.suomenpankki.fi/en/financial-stability/the-financial-system-in-brief/|url-status=live}}</ref><ref>{{Cite web|title=Introducing the Financial System {{!}} Boundless Economics|url=https://courses.lumenlearning.com/boundless-economics/chapter/introducing-the-financial-system/|website=courses.lumenlearning.com|access-date=2020-05-18|archive-date=2020-07-28|archive-url=https://web.archive.org/web/20200728111502/https://courses.lumenlearning.com/boundless-economics/chapter/introducing-the-financial-system/|url-status=live}}</ref><ref>{{Cite web|title=What is the financial system?|url=https://www.ecnmy.org/learn/your-money/banking-and-finance/what-is-the-financial-system/|website=Economy|access-date=2020-05-18|archive-date=2020-07-31|archive-url=https://web.archive.org/web/20200731162128/https://www.ecnmy.org/learn/your-money/banking-and-finance/what-is-the-financial-system/|url-status=live}}</ref>
A bank aggregates the activities of many borrowers and lenders. Banks accept deposits from individuals and businesses, paying interest on these funds. The bank then lends these deposits to borrowers. Banks facilitate transactions between borrowers and lenders of various sizes, enabling efficient financial coordination.

Investing typically entails the purchase of [[equity (finance)|stock]], either individual securities or via a [[mutual fund]], for example. Stocks are usually sold by corporations to investors so as to raise required capital in the form of "[[equity financing]]", as distinct from the debt financing described above. The financial intermediaries here are the [[investment bank]]s (which [[Investment banking#Corporate finance|find the initial investors]] and facilitate the listing of the securities, typically shares and bonds), the [[securities exchange]]s (which allow their trade thereafter), and the various investment service providers (including [[mutual funds]], [[pension funds]], [[Wealth management|wealth managers]], and [[stock brokers]], typically servicing retail investors).

Inter-institutional trade and investment, and [[investment management|fund-management at this scale]], is referred to as "wholesale finance".
Institutions here [[Structured finance|extend the products offered]], with related trading, to include bespoke [[Option (finance)|options]], [[Swap (finance)|swaps]], and [[structured products]], as well as [[Special-purpose entity#Types|specialized financing]]; this "[[financial engineering]]" is [[Outline of finance#Mathematical tools|inherently mathematical]], and these institutions are then the major employers of [[quantitative analyst]]s (or "quants", see [[#Financial mathematics|below]]). In these institutions, [[Financial risk management|risk management]], [[Capital requirement|regulatory capital]], and [[Regulatory compliance|compliance]] play major roles.
<!-- === Six pillars of Finance ===
* [[Asset management]]
* [[Securities research]] ([[Equity (finance)]] & [[Debt]])
* [[Investment banking]]
* [[Sales and trading]]
* [[Private equity]]
* [[Venture capital]] -->