Application of Finance

There are many types of “finance participant”, in this writing I’m trying my best here to chart them all out.

Fundamentally, the goal of finance participant, is to get more capital by utilizing their current resource. While the essence of capital here can be a bit subjective as it convey values differently depending on how people using them, the act of trying to get more of it was pretty much the same.

“More” can be in a sense of power and control, it can be in a form of defense (as it seems less of pursuing more but instead pursuing sustainability). Rather, the act of this is both “more”.

Below is a good way to map how people make money through the act of buying and selling stocks. Or any other type of transacting/trading any tradeable market instrument.

Another way that it seems a great understanding of how firms are using capital to make more capital, is they profiting on top of financial transaction, these transaction can be classified here.

Also, another way to see the capital market map out like the money market above, here: (While not exactly comprehensive, with deeper look you can spot the nuances of total financial transactions.)

So we have money market as we listed the first, we then have capital markets. Fundamentally I classified this as External Application of Finance or External Capital Allocation, or simply Financial Markets.

External Applications of Finance = Financial Markets

1. Money Markets (Short-term, <1 year)
   1. Treasury bills, commercial paper, CDs
   2. Repo markets, federal funds market
   3. Money market mutual funds
2. Capital Markets (Long-term, >1 year)
   1. Equity Markets: IPOs, secondary offerings, stock exchanges
   2. Debt Markets: Corporate bonds, government bonds, municipal bonds
3. Specialized Markets
   1. Foreign Exchange (Forex): Currency trading and hedging
   2. Derivatives Markets: Options, futures, swaps
   3. Private Markets: Private equity, venture capital
   4. Real Estate Markets: REITs, direct property investment
   5. Commodities Markets: Physical goods and futures
4. Corporate Finance Markets
   1. M&A Market: Mergers, acquisitions, LBOs, spin-offs

we then have Internal Application of Finance