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Finance, Banking and the Economy at large by Divyes Chakravarty

Gain an understanding of how money, banking and the financial system intersect and work. The different concepts, principles and intricacies of money and more.


Macroeconomics is the branch of economics that studies the behaviour and performance of the economy as a whole. It focuses on aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation. Macroeconomists employ aggregate measures such as gross domestic product (GDP), unemployment rates, and the consumer price index (CPI) to analyse large-scale consequences of individual decisions. The two main areas of macroeconomic research are long-term economic growth and shorter-term business cycles.


Microeconomics is the study of individuals, households and firms' behaviour in decision-making and allocation of resources. It generally applies to goods and services markets and deals with individual and economic issues. Microeconomics studies how prices are determined in the marketplace. Manufacturers and customers initiate forces that we term them as supply and demand accordingly and it is their interaction within the marketplace that devises the price mechanism. It is also known as Price Theory as it deals with the determination of the price of commodities and factors.

Financial Systems:

A financial system is a collection of institutions which allow the exchange of funds, such as banks, insurance companies, and stock exchanges. The financial system exists at the corporate, national, and global levels. Borrowers, lenders, and creditors are exchanging current funds to finance ventures, either for consumption or productive investment and seeking returns on their financial assets. Furthermore, the financial system includes sets of laws and policies used by creditors and lenders to determine which projects are funded, who fund the projects, and the scope of the financial deal.

Risk Management:

Risk management is the process of identifying, assessing and controlling financial, legal, strategic and security risks to an organization’s capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters. A successful risk assessment program must meet legal, contractual, social and ethical goals and monitor new technology-related regulations. By focusing attention on risk and committing the necessary resources to control and mitigate risk, a business will protect itself from uncertainty, reduce costs and increase the likelihood of business continuity and success. 

Three important steps of the risk management process are risk identification, risk analysis and assessment, and risk mitigation and monitoring.


  • Risk Identification: Risk identification is identifying and assessing threats to an organization, its operations and its workforce. For example, risk identification may include the implementation of a robust cybersecurity system to prevent malware attacks.

  • Risk Analysis: Risk analysis involves establishing the probability that a risk event might occur and the potential outcome of each event. Risk evaluation compares the magnitude of each risk and ranks them according to prominence and consequence.

  • Risk mitigation: Risk Mitigation refers to the process of planning and developing methods and options to reduce threats to project objectives. A project team might implement risk mitigation strategies to identify, monitor and evaluate risks and consequences inherent to completing a specific project, such as new product creation.

International Banking:

International banking refers to the practice of providing financial services across international boundaries. Banks provide services such as accepting deposits, issuing loans, facilitating payments, and offering investment products to customers around the world. International banking allows businesses to access capital from global markets and make investments overseas. It also enables customers to make transfers between foreign countries without having to use local currency exchange services. International banking services are beneficial for businesses as they provide access to a wider range of financial services than domestic banks can offer. This includes foreign currency exchange, international remittances and transfers, trade finance, and access to global markets. Additionally, by utilizing the expertise of international banks, businesses can take advantage of local knowledge to invest in the best markets around the globe.

Investment and Corporate Finance:

Investment and corporate finance are essential components of the financial landscape. Investment involves allocating capital with the expectation of generating returns over time. It encompasses various activities, including analysing markets, evaluating investment opportunities, managing portfolios, and assessing risk. Corporate finance, on the other hand, focuses on the financial decisions and strategies within a company. It involves managing capital structure, raising funds, making investment decisions, and maximizing shareholder value. Both investment and corporate finance play crucial roles in driving economic growth, facilitating business expansion, and optimizing financial resources. They require expertise in financial analysis, valuation, risk assessment, and strategic planning to make informed decisions that align with business objectives and deliver sustainable financial performance.


History of Money:

Before money, we used the barter system i.e. trading by goods and services. Metals objects were introduced as money around 5000 B.C. By 700 BC, the Lydians became the first in the Western world to make coins. Metal was used because it was readily available, easy to work with, and could be recycled. Soon, countries began minting their series of coins with specific values. Since coins were given a designated value, it became easier to compare the cost of items people wanted. Some of the earliest known paper money dates back to China, where the issuing of paper money became common from about 960 AD. With the introduction of paper currency and non-precious coinage, commodity money evolved into representative money. This meant that what the money itself was made of no longer had to be of great value. Representative money was backed by a government or bank's promise to exchange it for a certain amount of silver or gold. For example, the old British Pound bill or Pound Sterling was once guaranteed to be redeemable for a pound of sterling silver. For most of the 19th and the early part of the 20th century, the majority of currencies were based on representative money that relied on the gold standard. Representative money has now been replaced by fiat money. Money is now given its value by government fiat or decree, ushering in the era of enforceable legal tender, which means that by law, the refusal of "legal tender" money in favour of some other form of payment is illegal. Nowadays, even virtual currency is used. As digital representations of money, this type of currency is stored and traded using computer applications or specially designated software. The appeal of virtual currency is that it offers the promise of lower transaction fees than traditional online payment mechanisms do and is operated by decentralized authorities.

Corporate Governance: 

Corporate Governance refers to how companies are governed and for what purpose. It identifies who has power and accountability, and who makes decisions. It is, in essence, a toolkit that enables management and the board to deal more effectively with the challenges of running a company. Corporate governance ensures that businesses have appropriate decision-making processes and controls in place so that the interests of all stakeholders (shareholders, employees, suppliers, customers and the community) are balanced. Governance at a corporate level includes the processes through which a company’s objectives are set and pursued in the context of the social, regulatory and market environment. It is concerned with practices and procedures for trying to make sure that a company is run in such a way that it achieves its objectives while ensuring that stakeholders can have confidence that their trust in that company is well founded. As the home of good governance, the Institute believes that good governance is important as it provides the infrastructure to improve the quality of the decisions made by those who manage businesses. Good quality, ethical decision-making builds sustainable businesses and enables them to create long-term value more effectively.

Entrepreneurial Finance: 

While corporate finance focuses on existing businesses and the challenges they face to deliver returns to their investors and increase shareholder value, entrepreneurial finance is the study of value and resource allocation. It is centred around new businesses and the owner’s challenge to acquire the funding needed to test whether the business can become financially sustainable. All entrepreneurial ventures which are reliant on funding to get started must ask how much money can and should be raised, at what point in the journey, and which sources of funding are viable. Raising money can be a drain on time and existing financial resources, so entrepreneurs must do their research into the routes most likely to result in positive outcomes for their business model and industry.

Sources of entrepreneurial financing are:

  • Venture Capital: This type of entrepreneurship financing is often reserved for start-ups and small businesses which have the high-growth potential for long-term success. Venture capitalists don’t always provide investment in the form of financial funding, as this can also be provided to a business in the form of technical or managerial expertise. 

  • Angel Investors: Angel investors are typically a group of entrepreneurs or former executives who have amassed personal wealth through a variety of sources. These high-net-worth individuals provide venture capital and often co-invest alongside a trusted associate into the same or similar industries in which their experience lies.

  • Crowdfunding: Crowdfunding is when a business or new venture is presented online with a summary of the business plan, to raise money from individuals.

  • Initial Public Offering: An IPO is the first time a company sells its shares to the public in a bid to raise money. This form of financing is used by businesses of all sizes and at all stages and requires a lot of preparation, bureaucratic hurdles, and paperwork. This means that it is a risky option for start-ups as it can take a long time and incurs costs throughout the process. 



  1. Macroeconomics: Investopedia's "Macroeconomics" section (

  2. Microeconomics:

    Khan Academy's "Microeconomics" course (

  3. Risk Management: "Principles of Risk Management and Insurance" by George E. Rejda and Michael McNamara

  4. International Banking: The Bank for International Settlements' website (

  5. Investment and Corporate Finance:

    CFA Institute's "Corporate Finance" section (

  6. History of Money:

    "The Ascent of Money: A Financial History of the World" by Niall Ferguson,

    The British Museum's "History of Money" section (

  7. Corporate Governance: The

    International Corporate Governance Network's website (

  8. Entrepreneurial Finance: "Entrepreneurial Finance: Strategy, Valuation, and Deal Structure" by Janet Kiholm Smith, Richard L. Smith, and Richard T. Bliss





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