- Let's think about all the economic activity
in the world as a sea,
an ocean, with three kinds of players
swimming around in that ocean.
First, there are the entrepreneurs, the creators, the doers.
People and organizations with ideas, objectives and dreams.
They're swimming around out there in that economic sea.
There are also investors swimming around out there.
These are entities, individuals, companies,
who've saved money in the past,
and are now ready or lend it or invest it in somebody else.
Finally, there are facilitators swimming around out there.
These are specialized institutions,
who will match up the entrepreneurs,
who have ideas, but don't have money,
with the investors, who've got the money.
So in the economic environment outside of companies,
we've got entrepreneurs, investors, and facilitators.
With respect to the entrepreneurs,
who are creating and operating companies,
we've already talked about
the financial issues inside companies.
Entrepreneurs need to decide what to buy,
where to get the money to buy it,
and how to manage it once they have it.
Let's think about the economic environment
outside those companies,
in the rest of that economic sea.
What about those investors and savers?
What are they thinking about?
They're looking at their investment opportunities.
Under what conditions, under what circumstances,
and with what contracts
should they provide money to entrepreneurs?
Should they lend the money?
Should they invest the money?
What about their portfolio of investments?
They probably don't want to risk everything they have
in one big investment.
So what different things should they invest in?
Now the facilitators, the financial institutions,
bring together the entrepreneurs, who need the money,
and the investors, who have the money.
There are all kinds
of facilitating financial institutions out there.
There are banks, there are mutual funds,
private equity funds, insurance companies,
and there are investment banks.
There are all kinds of entities.
Entrepreneurs, investors, and facilitators
swimming around out there in the economic sea.
Finance allows us to look at each of these entities
and how they interact, one with another.
Finance is identifying the necessary resources
for an organization,
determining how to get the money to buy those resources,
and then how to manage those resources efficiently
once you have them.
That's the broad definition of finance.