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. Banks
are thus compensators of money flows in space since they allow
different lenders and borrowers to meet, and in time, since every
borrower will eventually pay back.
A specific example of corporate finance is
the sale of stock by a company to institutional investors like
investment banks, who in turn generally sell it to the public.
The stock gives whoever owns it part ownership in that company.
If you buy one share of XYZ inc, and they have 100 shares available,
you are 1/100 owner of that company. You own 1/100 of anything
on the asset side of the balance sheet. Of course, in return
for the stock, the company receives cash, which it uses to expand
its business in a process called "equity financing".
Equity financing mixed with the sale of bonds (or any other
debt financing) is called the company's capital structure.
Finance is used by individuals (personal finance),
by governments (public finance), by businesses (corporate finance),
etc., as well as by a wide variety of 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, with consideration to
their institutional setting.
