Financial system - what is it? Concept, structure

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:55

An important attribute of any modern state is the financial system. This is the same norm as institutions (schools, hospitals), the army, the government. It is difficult to imagine how the state would function without all this. In this regard, the question is relevant for those who want to understand: what is the financial system? What is it? What is its structure? How does the financial system of the Russian Federation work? All these questions will be answered within the framework of this article.

General information

First of all, you need to understand the terminology. The financial system is the totality of all relations that cover the formation and subsequent use of primary, derivative and final cash flows. If viewed from the point of view of structure, then it can be defined as an association of areas, links and institutions that indirectly contribute to the formation and use of income. At the same time, financial policy plays an important role.

It is a certain set of decisions that are made by the subjects of the economy in obtaining and using income. When people talk about financial policy, they usually mean the influence of the state. This can be felt throughout the country or just individual local governments. But we should not forget about the financial policy on the part of business entities, such as enterprises, firms, corporations. After all, every element of the system affects it. The only question is how much. It is one thing - a furniture manufacturing enterprise in a locality for a thousand people. And quite another - a huge corporation, which employs a hundred thousand people.

But perhaps the most tangible influence on the whole system is the government and the decisions it makes. Through his skillful or inept actions, a country can prosper or sink into poverty. After all, the government can determine the tax and bureaucratic burden, the convenience of using various tools (for example, investing in bonds and stocks) and much more.

What does the structure of the financial system look like?

Let's consider the example of the Russian Federation. Conventionally, four levels can be distinguished. For ease of understanding, let's imagine that we have a hierarchical pyramid in front of us. At the very top there is only one element - the financial system. It occupies the entire first level. On the second are the finances of power structures and independent economic entities. Each of these elements is divided into different components. So, the finances of enterprises, non-profit organizations and the population are referred to as independent economic entities. At this third level, the pyramid is limited. The finances of power structures are formed from the system of budgets andfunds. They occupy the third level. What applies to them? These are state and local budgets, as well as pension, insurance and other funds. This is the fourth level.

But if we talk about how the financial system of Russia is built, then all this will not be enough. It is necessary to consider the finances of power structures in more detail. Given the existing realities, it would be more appropriate to single out 3 elements of the third level. Namely, federal, regional and local finance. At the same time, the fourth level will also be rebuilt. In this case, federal finance will include the country's budget, various funds operating throughout the Russian Federation, loans issued (for example, to other countries), and funds from state enterprises. Listed here are things managed at the highest level.

Then comes regional finance. What are they? These are regional budgets and funds that provide loans to domestic entities and funds from subordinate state enterprises. And close the list of local governments. Their finances are represented by municipal budgets and funds, loans issued by territorial entities and funds from subordinate enterprises.

About relationships

Of course, the information is far from complete. You can also consider in detail the pension fund, social and medical insurance. But then it will turn out not an article, but a book. Therefore, let's better concentrate on the relationships that form the links of the financial system. But first, a little history. Public finances began to take shape at the dawn of the emergence of political entities. A little earlier, relationships between households were established. Commercial links fully took shape only in the Middle Ages. Although trade has flourished since antiquity, institutions that would purposefully work with money in the way they do now arose literally half a millennium ago. All relationships that take place are between the state, private enterprises, households and financial markets. Those who have studied political economy will be familiar with this scheme. But there is a fifth element - financial and credit institutions. What functions are performed by these close interlacings? Here is a short list:

1. Distribution function. Carrying out the primary and secondary division of the gross national product.
2. Regulating function. Used to stimulate or limit economic growth.
3. Control function. It manifests itself in the form of the influence of financial institutions on the distribution of resources.

That is, literally all the relationships that exist are taken into account. Some of them may not be registered, but nevertheless they are. And now let's take a closer look at what the financial system is. This will allow you to delve into all the nuances and understand how the individual components function.

Public Finance

Their design happened at the dawn of mankind. The public financial system has undergone many changes. It was originally usedbarter - the ruler had to pay a certain amount of products, raw materials, resources, products, provide supplies for the troops. Also for these purposes, precious metals and jewelry made from them were used. It should be noted that earlier they were understood as slightly different compounds than now. So, when the pyramids were built, bronze was considered valuable. Not only decorations were made from it, but also weapons that were progressive by those time standards. Everything changed when the ancient state began to issue a unified means of payment - coins. For their minting, such metals, which are already more familiar to us, as gold and silver, were used. Although the use of copper was common for small coins.

The next stage of evolution was reached at the moment when paper money appeared. They were very different from the then usual coins, and they were almost destroyed by the unsuccessful manipulations of financial tycoons. But, nevertheless, gradually paper money began to flood the settlement space. Although then one of their unpleasant properties was discovered - inflation. And to this day they are actively criticized for being prone to depreciation. Although it is much easier for the state to work with them.

And the next stage of evolutionary development is the so-called electronic money. Now all calculations are carried out using information technology, which allows them to be significantly simplified and accelerated.

About the market

It should be noted that the financial and economic system is designed in such a way that its componentsare quite intertwined, and it can be problematic to clearly attribute something to one thing. Take, for example, government loans. It displays temporarily borrowed free cash from the government to support current spending. It is based on the principle of voluntariness and offers the use of loans and the issuance of securities. And they are realized just in the financial market! But that's only part of it.

You can also think of the stock market, which provides the movement of capital in industries where there is a high level of income, mobilizing and effectively using temporarily free cash. It is built on the principle of selling specific financial assets, which are securities.

And then there are investment, insurance, government, pension funds. And sometimes they can be combined. Public finances and market funds are highly centralized. The market is quite strictly regulated by controlling structures, such as the Securities Commission, the Central Bank and many others. They are necessary in order to avoid and stop cases of fraud and abuse of their position by members.

About decentralized finance

These include cash held by businesses, intermediaries, non-profit organizations and households. How does the organization of the financial system take place with such decentralization? Let's look at each object individually:

1. Household finance. This iseconomic relations that arise in the real turnover of funds at the level of individual families. They are the material basis for people's lives and require control over income and expenses for one unit of society.
2. Finance of non-profit organizations. This includes charitable and community structures that are working to solve certain important problems.
3. Finance intermediaries. Their role is played by credit and insurance organizations, private pension and investment funds, as well as all other institutions that are used as flows for the entire system.
4. Business finance. They are engaged in the maintenance of material production and the creation of gross domestic product, as well as its redistribution. At the same time, the financial system of an enterprise can have many components. Thus, it is structurally similar to the global one, only on a much smaller scale.

About legal support

How does this big machine work? The financial system of the Russian Federation is built on the principle of profit, which is regulated and limited by law. A legal norm is necessary for the unification and standardization of relations, as well as to prevent the occurrence of critical situations of various levels. And specifically for this purpose, a system of financial law was developed. It allows you to control all ongoing processes. Also, legislation and regulatory mechanisms make it possible to avoid destabilization of the situation and the occurrence of losses. They work with the fundamental principles of the device. Correct, adequate and efficient organization of the financial system at the legislative and regulatory level allows avoiding many potential problems and crises. In addition, individual structures (local authorities) can influence the activities of individual elements (for example, enterprises) by providing land, supplying infrastructure, and so on.

About the guide

How is the financial system managed? In the Russian Federation they are doing this:

1. Ministry of Finance.
2. Federal Treasury.
3. Accounts Chamber.
4. State Tax Service.
5. Central Bank.

Each of these structures performs a specific job of maintaining the entire system. Central to it is the Ministry of Finance. The federal treasury supplements its functions. The Accounts Chamber monitors their work, as well as the functional suitability of the entire financial system, and provides data to the country's highest legislative body - the State Duma. She is the controller for the performers. The State Tax Service monitors the payment of taxes, administers them and implements the country's budget. The Central Bank is entrusted with the regulation of the work of commercial financial structures. Together they provide operational management. It is the most famous. But, besides this, there is also a general management. It is entrusted to the State Duma, the government andPresident. How is the management process implemented in practice? In our case it is:

1. Forecasting and subsequent planning. Includes justification of the sources of financial formation, as well as directions for their use.
2. Implementation of the plans and programs developed by ensuring the timely and complete mobilization of financial resources, their rational use and obtaining positive results.
3. Performing current and subsequent monitoring of compliance with legislative norms, as well as the effectiveness of decisions taken and then implemented.

A few words about intermediaries

It is necessary to mention the work of such structures as banks, pension and investment funds and a number of other similar organizations. What is their role? They are created to ensure the concentration of free money in the system with the subsequent transfer on special conditions to those who need it. Let's look at an example.

Hundreds of people have accumulated ten thousand rubles under their pillows. They bring them to the bank and open a deposit that guarantees ten percent per annum. At the same time, there is an entrepreneur who has calculated that if he expands his business, he will be able to significantly increase income. For example, with an investment of one million rubles, in a year he received four hundred thousand profits, that is, forty percent. But there is one problem - he does not have free money. In this case, he turns to the bank, which provides him with the entire necessary amount at twenty percent per annum.

BAs a result, all free money went into business and made a profit. The economy is working, increasing volumes, in a word, developing. But if there were no intermediaries, then you would have to independently look for individual people who have savings and negotiate with them.

Conclusion

So we have considered the concept of the financial system. The structure, features and political aspects were also indicated.