Finance jobs can seem a bit confusing, so we’ve put together a quick guide to the industry’s history. We’ve also outlined some of the key ways in which the maths you learn at school is used in the world of money.
Ways of bartering and “payment” have existed for thousands of years, but finance in its modern sense relies upon something called a capitalist economy. This depends upon private companies and people privately owning property and other assets.
In England, this kind of economy began to emerge as early as the 1600s. Throughout the 17th century, companies such as Lloyd’s of London took advantage of the increase in trade between different continents by offering insurance policies.
Insurance means paying a set amount of money, either regularly or as a one-off fee, in order to protect yourself in case you, someone close to you or your company lose money, break things or even die! So if you have home insurance and your house floods, the bank can cover the repair costs. As well as basic mathematics, insurance brokers also need to be able to work out the fees they want to charge. They need to calculate the probability of having to pay out to their client, as well as predicting their profit margin.
As different economies around the world started trading, a way of reliably exchanging currency (like you do when you go on holiday) became necessary. Money-changers had existed since ancient times, but it became really widespread around the 18th and 19th centuries.
Exchange rates change constantly, and depend on the foreign exchange market (also known as Forex). Things like political changes, war and demand can affect any given currency, meaning £1 (GBP) could be worth €1.50 (EUR) one day, but only €1 another. Computers and algorithms do a lot of the legwork these days, but it used to completely rely on human-powered maths. In a way it sort of still does, as people are responsible for ensuring the artificial intelligence is working.
The stock market – stocks and shares (securities) – in many ways similar to Forex – is another way in which maths can be found in many areas of the finance industry. Market sentiment refers to the overall attitude of investors toward a particular security or financial market. The market responds to many aspects of change – political, environmental etc. as well as supply and demand for a particular security, just like Forex. People called brokers are in charge of managing their clients money by buying and selling shares in various companies. It’s an exercise in market knowledge and experience, probability and arithmetic, so maths is indispensable when it comes to trading stocks.