Financial Theory is a branch of economics that studies how individuals and institutions manage resources over time under conditions of uncertainty. It provides frameworks for understanding concepts such as risk, return, and market efficiency. By analyzing these elements, financial theory helps explain how financial markets operate and how assets are valued. Key components of financial theory include the Capital Asset Pricing Model (CAPM), which describes the relationship between risk and expected return, and the Efficient Market Hypothesis (EMH), which suggests that asset prices reflect all available information. These theories guide investors and policymakers in making informed financial decisions.