What is finance? Do you think of economics, banking, investments, Wall Street, or simply the lending of money?
The word is derived from "finer" meaning to end, finish, or pay. Finance is generally accepted in our economy as the transaction of money matters. How will you finance this vehicle sir? "Well, I will pay with cash" you might answer as you slip the person a $20 bill and ride off on your used skateboard. I didn't say this transaction was high finance. Though I do wonder, what defines high finance? Is high finance simply a slang term for more than you can afford? High finance must be dynamic as it carries a new definition each day as your wallet empties and refills.
Finance is many times associated with banking, investments, and Wall Street. Those receiving multi-million dollar bonuses would consider high finance the cost of a $37 salad at a chic restaurant. A cab ride four blocks in New York City might cost $12, certainly high finance to the driver, but likely pocket change to the passenger.
Debt is the result of borrowing from a lender. A loan is typically secured by an asset, known as collateral. A debenture is an unsecured loan. Interest is the cost of borrowing money from someone else. Principal is the current balance of a loan that would need to be paid to consider the loan satisfied. Loans can be repaid in a variety of methods. Most individuals pay a loan with monthly payments over a period of time. There are loans that establish a limit and revolve as the principal balance fluctuates. There are balloon payment loans where a borrower pays interest only until the final due date and then pays the principal balance in one large payment. There are amortized loans, like most home owners mortgages, which a payment each month covers interest and also pays down the principal balance.
A check is a form of financing. Not commonly known, but a check is a negotiable order of withdrawal. The term NOW account was derived from this instrument of finance and banks marketed checking accounts in the 80's using this term. When one "cuts a check" they are promising to repay the check with funds that they have, or are supposed to have, in a bank. The person or entity receiving a check is providing an interest free loan while they wait for the funds to transfer from your bank account to their bank account.
Cash is also a form of financing. Cash is a negotiable tender. A tender is a form of payment. Cash is also a liquid asset meaning once received, it can immediately be used in exchange for a new purchase. The term "cash is king" is used to highlight the liquidity cash provides and the immediate closure it provides to a financial transaction.
Bartering is another form of finance. One purchases goods or services and funds the purchase with an asset or service that they can offer in lieu of a cash payment. Trading baseball cards is a form of barter, you are exchanging your asset for another.
Finance, I have determined, is a term primarily related to borrowing, spending, and lending. InfoBarrel contains many articles on finance which, as a student of business, I have enjoyed reading. I hope you enjoy them as well.