As the definition says, finance is the result of monetary relations in certain socio-economic conditions. For their emergence as a separate sphere of economic relations, it is necessary to provide such conditions under which a whole complex of various factors will arise and coincide in time at a specific historical stage, including:
- formation and recognition of the ownership of certain individuals to any services, goods, land, natural and other resources;
- formed system of legal norms in the field of property relations;
- emergence of socially distinct groups of citizens;
- strengthening the state as a party expressing the interests of the whole society, as well as acquiring the status of the owner.
What are they formed from?
All the above conditions arise only if there is one common prerequisite - a sufficiently large level of production, an increase in efficiency, an increase in the level of income of the population, as well as their exceeding the boundaries thatrequired for biological survival. The creation, distribution, as well as the subsequent use of monetary income is the main condition on which they are based as a definition. Finance is the money of a certain person. At the same time, financial interests include the needs of these owners.
In order for them to appear, an appropriate level of development of the monetary economy, a continuous circulation of funds in large volumes, as well as the creation and competent application of their main functions are also required. All this is included in the main definition. Finance is the movement of monetary profit, and in any case, such relations also affect property. It is necessary to understand correctly that this includes not only monetary, but also property relations, and a certain owner always acts as a subject. It is in the process of distribution and use of the monetary profit that is in its ownership that each participant has the opportunity to realize their interests and determine them. Finance is a tool for every legal or natural person, with the help of which he achieves his goals.
Resources
No serious political or economic decisions can be made unless a detailed assessment of the amount of monetary profit that is required for this has been made. At the same time, every person who understands what finance is, knows perfectly well that the distribution and accumulation of funds acquires a target character and forms suchconcept as "financial resources". Representing monetary income that is accumulated and distributed for specific purposes, they are used for a variety of economic, political, social, cultural, scientific and many other purposes.
Based on what finance is, resources are accumulated income that is earmarked for specific needs. They provide services for each individual stage of the movement of funds, from their formation to use. Since finances are determined by the way in which cash moves, the pattern of its movement has a direct impact on it. In the overwhelming majority of cases, the circulation of income includes three stages:
- primary;
- secondary (redistribution);
- final (use).
Thus, finance is directly related to how cash is generated, distributed and used.
Primary
The formation of primary income is carried out through the sale and further distribution of profits received from any services or commercial products. Since the production procedure in most cases is continuous, at the implementation stage it is required to allocate a certain part of the proceeds in order to ensure this very continuity.
The financial market provides for the formation of primary income due to the expanded production of goods, which is serviced by cashfunds.
Distribution
Represents the creation of primary income based on gross revenue. At the same time, there is also a secondary distribution, which can be carried out in several steps and has a multiple character.
Any production processes that the financial market serves end up with the procedure for the initial distribution of funds, without which there is simply no way to ensure further economic development. At the same time, the distribution of cash income is in any case serviced by finance. Allocation of appropriate resources for further expansion of production can take several basic forms:
- depreciation of various equipment;
- payment of existing material costs;
- paying rent;
- loan interest;
- remuneration of all employees who take part in the production process.
After the primary distribution of cash income has been carried out, the redistribution procedure is launched, that is, secondary incomes begin to form. First of all, this includes taxes, as well as contributions to social, insurance, cultural and many other organizations.
Implementation
The last stage of the distribution of income is their implementation, and they themselves are called final. The finance service allows not to realize a certain part of the final income, but instead to direct it to any savings and savings. At the same time, it is worth noting thatthe distribution procedure is influenced not only by the finances themselves, but also by the cost of production.
Since the procedure for the sale of any services, goods or anything else into cash is carried out at set prices, their dynamics has a direct impact on these procedures. The stronger the price change in any direction, the more money profit begins to fluctuate, and such shifts occur especially sharply in inflationary conditions.
Components of finance as elements of monetary profit can act in a variety of forms. For the existing sector of the economy, resources represent a certain part of the profit, for the family - the total income of all its members, and for the state budget - the total amount of its revenue.
How is distribution and redistribution carried out?
There are a huge number of economic entities that, together with the population, spend finances and offer resources. It is quite natural that potential consumers of such funds do not have the opportunity to independently determine business relations with individual economic entities or with each individual citizen. In this regard, the problem arises of how to combine disparate savings into large amounts of financial resources, which can later be offered for use by some large potential investor.
To resolve such issues, the use of finance is entrusted to specialized intermediaries, which may be banks,mutual and investment funds, various companies, associations and many other structures that accumulate free resources and subsequently pay a certain percentage on them.
Resources attracted by intermediaries are provided as loans or can be invested in various securities. The formation of the finances of such organizations (their income) is the difference between the interest paid on the money raised and the interest received on the money provided.
The direct owner of money savings has the right to transfer his funds to any investment companies or banks, and can directly buy certain bonds and shares owned by industrial corporations. But at the same time, you need to correctly understand that even in the second case, you will have to deal with intermediaries in the form of brokers and dealers who are professional participants in the financial market. Dealers operate independently, that is, they work exclusively on their own behalf, while brokers represent the interests of their clients, spending their finances and money.
Tools
The modern financial market provides potential investors with fairly wide opportunities in terms of investing through the purchase of financial obligations of a large number of economic entities, and such obligations are commonly called "financial instruments". In particular, this includes bonds, stocks, certificates of deposit, bills, futures contracts and more.many other securities.
Due to a fairly wide variety of available instruments, the influence of finance allows their owners to diversify their own investment portfolio, that is, to distribute savings among the obligations of various organizations and banking structures. At the same time, it is necessary to correctly understand that such obligations will have different returns, but at the same time they will also differ in varying degrees of riskiness. If one company eventually fails, then the investments in others will be preserved, so portfolio diversification is always carried out on the principle of “you can’t put everything in one basket.”
Relationships
Financial relations are directly related to the distribution, redistribution and further use of funds. At the same time, it should be noted that their main phenomenon arises in the process of distribution of primary income.
Financial relations, which are formed in connection with monetary and directly service the circulation of funds, apply to almost all legal entities and individuals. The main participants are:
- all manufacturers, regardless of the specific area in which they operate;
- state and population;
- specialized financial institutions and banking structures;
- non-profit and government organizations.
In the process of its development, financial relations also create credit ones, after which they begin to exist, closely interacting with them.
Functions
Finances are social relations in the field of formation, distribution and further use of funds of funds, which is their main essence.
Financial relations are formed in specific socio-economic conditions that are created as a result of the development of civilization. The main conditions for their appearance are:
- formation and strengthening of state principles in the daily life of society;
- constant development of the exchange of various products of labor and the emergence of money;
- creation of private ownership of various products of labor;
- development of the institution of law and customs.
The main functions of finance are control, distribution and incentive.
Distribution room
This function is the most important, as it reveals their essence as much as possible. It consists in the fact that the newly created price in the economic system should be distributed in full accordance with the basic needs of the state and society, and the instrument used to achieve this goal is directly finance. On the one hand, their formation is carried out at the expense of income received, but on the other hand, the expenditures of budgetary and extra-budgetary funds ensure the formation of secondary income, which ensures the distribution and further redistribution of GNP through financial systems.
The content of this procedure is the movement of profit, since it is shegoes through all these processes. In this regard, primary and secondary distribution is distinguished.
It is generally accepted to distinguish three main stages in the movement of income, in accordance with which primary, secondary and final profits are formed.
Primary income is generated through the distribution of proceeds from the sale of goods. The amount of profit received is divided into a fund through which the material costs incurred in the production process are reimbursed, as well as the salary of employees and the profit of the owner. Thus, the main income is created, which the owner of production factors receives, but this also includes indirect taxes established by the current legislation.
At the second stage, direct taxes, insurance payments for social insurance are paid from primary income, and assistance is provided to disabled people. At the same time, from the newly formed funds of funds, including also the budgets of different levels of government and various extra-budgetary funds, funds are paid out, which are the expenses of employees in the non-material sphere, teachers, doctors, employees, notaries, the military and many other structures.
