Finance is concerned with the acquisition and use of the firm's financial resources. It is an integral part of the overall management. Therefore, it should be studied along with other disciplines. It is because finance derives heavily the conceptual and analytic foundations from other disciplines particularly from economics and accountancy.
1. Relationship With Economics
The relationship between corporate finance and economics can be viewed from two basic aspects of economics macroeconomics and microeconomics.
Macroeconomics is concerned with broad aspects of an economy such as output, employment and income. Every business firm operates within the economy. It is imperative for financial managers to understand the broad economic framework. He must also be alert about the consequences of varying levels of economic activities, and recognize and understand the effect of monetary policy on the cost and availability of funds. The financial managers should evaluate various financing and investment alternatives in a macroeconomic framework.
Microeconomics is concerned with the economic issues relating to individual firms operating within the economy. It deals with the economic problems related to individual firms. Many principles associated to microeconomics such as demand and supply analysis, profit maximization strategies, pricing theories have practical application in finance. In this sense, finance is regarded as applied microeconomics. The principle of marginal analysis technique of microeconomics is widely used in finance for decision making.
2. Relationship With Accounting
The relationship between finance and accounting is quite close. Accounting is basically concerned with collecting, presenting and processing necessary financial data, whereas finance is concerned with decision-making. The financial manager, as per the requirements, recasts the statements prepared by accountants, generates additional data, and makes decisions on subsequent analysis.
3. Relationship To Other Disciplines
Besides its direct relationship to economics and accounting, finance is also related to other disciplines, such as mathematics production and quantitative techniques . In fact, it draws heavily on mathematics and quantitative techniques. The use of several quantitative and mathematical techniques have been extremely useful for solving complex financial problems of a firm.
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