How Finance Works

How Finance Works

Finance is the branch of study concerned with borrowing and lending money, investing, and raising capital. It includes public, corporate, and personal finances as major categories.

Dina Gerdeman: Finance can be complex, yet Mihir Desai shows an easier way of understanding it in his book How Finance Works: The Harvard Business Review Guide to Thinking Smart About Numbers.

Financial theory

Finance is the discipline that studies money as it moves between savers and investors as well as entities that need it, such as individuals, governments, and corporations. This field encompasses multiple subdisciplines like management, (financial) economics, accounting and valuation/distribution over space and time using risk-appropriate discount rates for assets/liabilities over space/time – such as valuation vs deployment of assets vs liabilities etc.

Based on Mihir Desai, a Harvard Business School professor and author of The Wisdom of Finance, this book brings complex topics alive through engaging case studies and interactive exercises. Furthermore, its conversational tone and full-color visuals make this must-read book for managers or anyone wanting a deeper look into numbers.

Financial institutions

Financial institutions (FIs) are institutions that offer various monetary or financial services to both individuals and businesses, under regulation by national authorities to maintain an active and healthy ecosystem for finance. Examples include central banks, commercial banks, investment entities, credit unions, savings institutions and insurance companies.

They also help facilitate capital markets, which facilitate lending and investing money by taking deposits from those with spare cash who need lending money for investments or loans. In return, these financial services firms earn interest off these deposits or loans.

Finance may seem complex and daunting, but with the proper knowledge it can become an invaluable skill in your career. Through engaging stories, interactive exercises, and full-color visuals this course explains how finance works.


Finance is the study of capital flows between individuals (personal finance), companies (corporate finance) and governments (public finance). At its core, finance entails channeling savings from investors directly to entities that need it through loans or investing assets that produce income, profits, or gains over time.

The financial system also permits individuals and firms to raise funds by issuing securities like stocks or bonds in the market, providing individuals with ownership stakes in publicly traded firms while helping firms fund operations, growth, and expansion.

Balance sheets and complex financial jargon may seem intimidating, yet a sound understanding of finances is the cornerstone of success in any business. Harvard Business School professor Mihir Desai provides an accessible introduction to this complex yet endlessly fascinating field in his book How Finance Works.

Financial markets

Financial markets bring together borrowers and lenders in efficient ways, contributing to a healthier national and global economy. Furthermore, they allow investors to purchase or sell securities like stocks, bonds, and commodities at reduced transaction costs.

Banks collect deposits from savers and then lend it to borrowers at an interest fee; without financial markets, this process would be inefficient and more expensive.

Professor Desai uses entertaining case studies, interactive exercises, full-color visuals and an accessible conversational style to demonstrate how different levers of finance affect company performance. He also addresses key topics like using finance as an instrument for strategic decision making – making this book an indispensable resource for those who wish to understand more about finance’s inner workings.