Finance is often defined simply as the management of money or “funds” management. Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created for transacting and trading assets, liabilities, and risks. Finance is conceptualized, structured, and regulated by a complex system of power relations within political economies across state and global markets. Finance is both art (e.g. product development) and science (e.g. measurement), although these activities increasingly converge through the intense technical and institutional focus on measuring and hedging risk-return relationships that underlie shareholder value. Networks of financial businesses exist to create, negotiate, market, and trade in evermore-complex financial products and services for their own as well as their clients’ accounts. Financial performance measures assess the efficiency and profitability of investments, the safety of debtors’ claims against assets, and the likelihood that derivative instruments will protect investors against a variety of market risks.
The efficient market hypothesis is the hypothesis that the stock market reacts immediately to all the information that is available. Thus a long term investor cannot obtain higher than average returns form a well diversified share portfolio.
Different types of efficiency can be distinguished in the context of operation of financial markets.
In financial markets allow funds to be directed towards firms which make the most productive use of them, htn there is allocative efficiency in these markets.
Transaction costs are incurred by participants in the financial markets, for example commissions on share transaction , margins between interest rates for lending and