{"id":565,"date":"2020-03-09T16:49:52","date_gmt":"2020-03-09T14:49:52","guid":{"rendered":"https:\/\/blogs.hanken.fi\/nordicbrilliance\/?p=565"},"modified":"2020-03-09T16:49:52","modified_gmt":"2020-03-09T14:49:52","slug":"why-study-finance","status":"publish","type":"post","link":"https:\/\/blogs.hanken.fi\/nordicbrilliance\/2020\/03\/09\/why-study-finance\/","title":{"rendered":"Why study Finance?"},"content":{"rendered":"\n

You\nmight be wondering\u2026 \u201cwhy should I pursue a Finance<\/strong> Masters?\u201d or alternatively\u2026\n\u201cwhy should I pursue a Finance Masters at Hanken<\/strong>?\u201d. If you had any of\nthose questions in mind, congratulations, you have come to the right place!\nThis blog post aims to give you a brief insight into the world of Finance and\nthen goes on to explain why Hanken is the best choice for a Finance career.<\/p>\n\n\n\n

A\nquick Google search will tell you \u2013 \u2018Finance is the study of money and how it\nis used.\u2019 but really, is it just this, or does it get deeper than that? In all\nfairness, the answer is: it is a lot more<\/strong>. We can go about understanding\nthis social science by decomposing it into its fields \u2013 economics, statistics,\nmanagement, and at the very basic level: human behavior<\/strong>. Yes, my Hankiets\n(and future Hankiets), at grass root level, Finance is all about how an individual\nmakes choices given limited resources. <\/p>\n\n\n\n

As\nhumans, (on average<\/em>) we are innately driven by rational decision-making\nwhich ultimately desires maximum utility or, in simple words, satisfaction. Professor\nGonul explained this concept in layman terminology \u2013 consider the following\nsimple example: Robinson Crusoe is stuck on an island and all that he owns is\nan apple tree (think of apples as wealth<\/em>). For the purpose of this\nexample, we assume that apples provide satisfaction to him. Because he is a\nrational decision-maker, Rob knows that he can water his tree (think of this\nas investment<\/em>) and grow more apples for tomorrow. At the same time, he also\nwants to eat a share of those apples today as he is hungry (think of this as\nconsumption<\/em>). His combination of investment and consumption will define how\nmuch he owns today and tomorrow. <\/p>\n\n\n\n

So,\nwhat will Rob want? Economics shows that he would want to consume\/invest up to\nthe point where the additional satisfaction from consuming an apple today<\/strong>,\nis equal to the additional satisfaction from consuming an apple tomorrow<\/strong>.\nThis is because, at this point, Rob would be maximizing his overall satisfaction\nlevel. <\/p>\n\n\n\n

But\nall this while we have been assuming that Rob knows how to water\/fertilize his\napple tree. What if he doesn\u2019t? Now, let us introduce Alice Liddell, a\nprofessional arborist. Rob appoints Alice to grow his tree. So now, Alice is\nresponsible for his Rob\u2019s resources and is also expected to grow at least some\napples that Rob wants to consume tomorrow. We cannot say with certainty how\nmany apples these would be because there is uncertainty<\/strong> in how much\nfruit the tree will bear. <\/p>\n\n\n\n

As\nthe day changes, Alice reports to Rob that she has successfully grown 10\napples. Rob believes that 5 apples are more than enough for his consumption\ntoday. What do we do with the 5 extra ones? Let us introduce Homer Simpson,\nanother individual like Rob, who grows oranges. Assuming that Homer has a\nsurplus of oranges, Rob can exchange apples for oranges and achieve higher\nsatisfaction today. <\/p>\n\n\n\n

In\nan alternate scenario, we assume that Homer wants to borrow the apples from\nRob. This means that Rob will receive a greater number of apples when Homer\nrepays. Therefore, Rob will still achieve a higher overall satisfaction. Hurrah!\nHe has successfully maximized his wealth, and his utility!<\/p>\n\n\n\n

The\nreal essence of this example is as follows: Finance enables efficient transfer\nof funds from individuals with few productive opportunities to others with less\nwealth and more opportunities. So, at the end of it, everybody is better off\nthan before! A win-win situation indeed.<\/p>\n\n\n\n

Believe\nit or not, this crash course is all what Finance is about. So, to answer the\nfirst question: Finance is intuitive to human nature. Every day we make\ncountless decisions that require principles of Finance but because they are so\ningrained in human nature, we tend to look past their importance. And this is\nthe very reason we should study this field \u2013 so that we can leverage the\nknowledge of Finance to create better investments and reap even better returns.<\/p>\n\n\n\n

To\nanswer the second part of the discussion, we shall briefly touch upon the\nvarious topics in Finance that each situation (in the example) corresponds to. <\/p>\n\n\n\n