What is finance?
Finance in scientific and educational literature is defined as a set of economic relations arising in the process of formation, distribution and use of centralized and decentralized funds of money.
An important element of finance is the category of resource distribution. This category is ancient and has existed since the dawn of human society. For example, in primitive society, hunters killed a mammoth, but shared it with the rest of the tribe (women, elders, children), who did not directly participate in the hunt – such a system of relations based on the distribution of resources contributed to the formation of human society, without which the emergence of civilization and the system of statehood would be impossible. In the modern state, financial resources are already shared, and the system of their distribution is still at the head of it. Distribution does not necessarily imply gratuitous receipt of financial resources – on the contrary, distribution is understood as a kind of exchange, an exchange of heterogeneous resources. For example, a pensioner gave his pension for many years of work and made contributions to the social funds of the state, and the state when a citizen reaches a certain age, distributes already new revenues of future pensioners and pays them to actual pensioners. Many historical figures speculated on the notion of distribution in connection with such categories as justice, equality or, on the contrary, inequality, due to which many interpretations of the term resource distribution in the theory of finance were formed
Signs of Finance
Financial relations are characterized by a number of attributes. The basis is always the funds, which are eventually exchanged for certain services and goods. Besides, products and services provided by any organization form financial relations. Finance itself is characterized by the distribution of the wealth of the state and the distribution of monetary resources.
In any of and financial spheres, daily operations are associated with the transfer of funds between entities, as well as with the intended purpose. This means that from other concepts, finance is distinguished by the monetary form, which is in permanent circulation, and depends on a number of political and economic factors.
In addition to the movement of money, finances are faced with when they perform a distributive function. For example, it can be the flow of budgetary funds aimed at public and social needs. In the form of distributional value of GDP can act not only as finances. It can be credits, income and prices.
These categories from economic activity are distinguished by a number of features, which are manifested in certain appointments. Part of the accumulation from financial relations, is the net income, that is, profit. These processes of redistribution and distribution form special types of monetary resources.
Functions of Finance
There are 3 main functions of finance, namely:
Controlling. This function is expressed exclusively through financial control over qualitative and quantitative use of monetary resources. Its basic role consists in analyzing separate spheres of activity of subjects of management. It is also manifested over the distribution of the value of products at various stages of its movement to funds and expenditures on purpose. With the help of the control function assess the effectiveness of the use of funds for the investment sector and other areas;
distributive. It is manifested in the process of use of funds accumulated earlier. Then they will be directed to the corresponding needs and needs of economic systems for financial support. In the process of creation of a social product, the function works as the accumulator of monetary resources. With its help, various processes can be carried out. For example, the redistribution of the value of public products regardless of the structural division of the economy, including different levels of management. Through the use of this function there is a supply of monetary resources of reproduction. Following the primary distribution of financial resources, money flows are redistributed. The state does this to form the budget with the help of taxation and other revenues. The function is necessary for and reproduction of the expenditure part of the state budget, as well as the financial resources of individuals;
Accumulating. In other words, this function is called accumulative. This is the process of mobilization or accumulation of monetary resources, which are needed for the full operation of the economic system. Sometimes the function is manifested in the formation of revenues in enterprises, in the formation of the budget of the state or family.
Other functions include regulatory, necessary to maintain order in society, as well as incentive and investment. One of the bodies managing financial resources is the Ministry of Finance. Its main task is:
- finalizing and drafting the laws that control the financial system;
- Forming the country’s budget;
- drawing up effective methods for domestic reporting, accounting, and auditing;
- control of the federal budget;
- redistribution of financial resources between different branches.
What is the financial system
The financial system includes the blocks, as well as the various links of financial relationships. The blocks of the system are:
The finances of organizations and citizens of individuals. Each of the links differs in their functions, but together they form one financial system of the state.
The latter are characterized by economic relations on creation and application of centralized funds and monetary resources, which are intended for the performance by the state of its direct functions. State finances consist of extra-budgetary funds and the state budget.
State extra-budgetary funds are a form of redistribution and accumulation of cash flows for social needs and additional financing of territorial needs. The funds are created at the territorial and federal level and are distinguished by their special purpose. Extrabudgetary funds consist of the Social Insurance Fund, the Pension Fund, as well as the Mandatory Medical Insurance Fund.
Finances of organizations are economic relations that arise against the background of the formation, as well as the use of monetary resources of individuals, necessary for reproduction. The finances of legal entities are divided into two groups. First, these are the resources of organizations focused on education, politics and training. The second group is formed by commercial companies.
If we are talking about individuals, the subjects of management, they are themselves. Here the financial resources are accumulated from such sources as:
- profits derived from transactions with their own property;
- income in the form of social payments and benefits;
- income from activity as an entrepreneur;
- funds obtained through the ownership of securities. It also includes receipts from the financial and credit sphere.
There are several types of expenditures of individuals, these are:
- Savings. This includes the purchase of jewelry, paintings, or antiques;
- Taxes. Property tax and personal income tax;
- savings. These are term deposits, insurance, deposits, purchase of foreign currency or securities;
- Consumer expenditures. Spending on food, durable or everyday goods.
The expenses of the family budget form the financial portfolio of assets, which is a set of assets that form the wealth of each family.