Financial Tools, Ratios, and Investors
Welcome to bpfinancialgroup.com! We are a website dedicated to helping demystify the complexities of financial tools, financial ratios, and financial bylaws. Finance is a complicated sector of the economy today. Everyone struggles at one time or another to understand the complexities of our financial systems. For some, their sole detailed interaction with financial regulation comes during tax time, when they have to fill out their tax forms and submit them.
The struggle with finance is nothing new. If you think about it, the concept of an inked piece of paper having an intrinsic value above that of the paper and ink is not at all intuitive. To make matters more strange, the paper can hardly be said to be unique, there are no great truths written up money, and the artwork on a bill is repeated on millions more just like it. Yet people go to great lengths to collect these pieces of paper, which hold no value apart from that which we perceive them to have. It is not as if money really has the capacity to do anything, the way a boat, or an oil well, or a house can be said to do things.
Money (the cornerstone of finance) is held up by our belief in it. Every financial tool or ratio conceived presumes that we trust the value of our currency, which is not nearly as remarkable as the fact that we all actually do trust it. Currency in general has a long history. The first pieces of currency were bits of metal that stood for bushels of grain. These bits were used in the ancient Egyptian granaries both to show the amount of grain they contained and to trade in for grain from the granary.
The ancient world switched from representative trinkets (such as ivory, stone, bones, or glass) to precious metals for simplicity’s sake. There was little chance of counterfeiting a coin, and coins could be weighed to ensure that they weren’t painted wood, or shaved of additional material. The money changer became an accepted profession, as someone who could exchange foreign currency for its local equivalence. The first financial ratio was then the exchange rate of foreign coins for local, with a small fee for the money changer’s services. The first financial tools were the scales used to weigh coins and ensure their validity.
Eventually the move was made from coinage to paper money. This occurred first in ancient China, and then in the Islamic world. The West was relatively slow to take hold of paper money, with Sweden boasting the first paper currency. They did so for practical reasons. Copper (the most common coin currency) was so common in Sweden that they were forced to make huge coins weight multiple pounds just to have a meaningful value. The weight of coin versus paper was the primary driving factor behind the adoption of paper currency. The other driver was the safety aspect. If someone stole 100 lbs of gold from you and fled the country, they were rich and you had lost a lot of money. If they stole 100 notes for 1lb of gold each, the notes would be worthless in another country, and your gold was still securely guarded somewhere else.