Definition: finance is cash, cash. Formation and use of finance

As the definition says, finance is the result of monetary relations in some socio-economic conditions. For their emergence as a separate sphere of economic relations, it is necessary to ensure such conditions under which a whole complex of various factors will arise and coincide in time at a particular historical stage, including:

• Formation, as well as recognition of the right of ownership of certain individuals to any services, goods, land, natural and other resources;
• The formed system of legal norms in the field of property relations;
• The emergence of socially different 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 premise: a sufficiently large level of production, an increase in efficiency, an increase in the income level of the population, as well as exceeding the boundaries that are required to ensure biological survival. The creation, distribution, and subsequent use of money incomes is the basic 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, the corresponding level of development of the money economy, the continuous turnover of funds in a large volume, and the creation and competent application of their basic functions are also required. All this is included in the basic definition. Finance is a movement of money profit, and similar relations in any case affect property. It is necessary to understand correctly that this includes not only monetary, but also property relations, and the subject is always a certain owner. It is in the process of distributing and using the monetary profit that is in its ownership that each participant has the opportunity to realize his interests and define them. Finance is the tool of every legal or natural person, with the help of which he achieves the set goals.

Resources

No serious political or economic decisions can be made unless a detailed estimate of the amount of monetary profit that was required is previously provided. At the same time, every person who understands what is finance knows perfectly well that the distribution and accumulation of funds becomes a target character and forms such a notion as "financial resources". Representing monetary incomes, accumulated and distributed for certain purposes, they are used in a variety of economic, political, social, cultural, scientific and many other purposes.

Based on what is finance, resources are accumulated revenues that are meant to meet specific needs. They ensure the servicing of each separate stage of cash flow, from their formation to use. Since finance is conditioned by the way cash flows, the pattern of its movement has a direct impact on it. In most 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

Formation of primary incomes is carried out at the expense of realization and the further distribution of the profit received from any services or a commodity output. Since the production procedure in the majority of 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 incomes as a result of conducting expanded production of goods, which is serviced by cash.

Distribution

It is the creation of primary incomes, based on gross revenue. There is also a secondary distribution, which can be carried out in several steps and has a multiple character.

Any production process that serves the financial market ends with the procedure for the initial distribution of funds, without which there is simply no possibility of securing further economic development. In this case, the distribution of money income in any case is financed. The allocation of appropriate resources for further expansion of production can take several basic forms:

• Amortization of various equipment;
• Payment of available material costs;
• Payment of rent;
• Credit interest;
• Pay for all employees who participate in the production process.

After the primary distribution of monetary incomes was carried out, the redistribution procedure is started, that is, secondary incomes begin to be generated. First of all, it includes taxes, as well as contributions to social, insurance, cultural and many other organizations.

Implementation

The last stage of income distribution is their realization, and they themselves are called finite. The Finance Service allows you not to realize a certain part of the final income, but instead direct it to any savings and savings. It should be noted that the distribution procedure is affected not only by the finance itself, but also by the cost of the products.

Since the procedure for the sale of any services, goods, or something else at a set price to cash, their dynamics have a direct impact on these procedures. The more the price changes in any direction, the more the money profit begins to fluctuate, and especially such changes occur in the conditions of inflation.

Components of finance as elements of monetary profit can appear in many different forms. For the existing sector of the economy, resources represent a certain part of the profit, for the family - the aggregate income of all its members, and for the state budget - the total amount of its revenue part.

How is distribution and redistribution carried out?

There are a huge number of economic entities, which, together with the population, carry out the expenditure of finance and the supply of 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 that can later be offered for use by some large potential investor.

To solve such problems, the use of finance is entrusted to specialized intermediaries, which can be banks, mutual funds and investment funds, various companies, associations and many other structures that accumulate free resources and subsequently pay a certain percentage of them.

Attracted resources 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 attracted money and that received on the given.

The immediate owner of cash savings has the right to transfer the funds available to him to any investment companies or banks, and can directly buy certain bonds and shares owned by industrial corporations. But you need to understand correctly that even in the second case you will have to deal with intermediaries in the form of brokers and dealers who are professional participants of the financial market. Dealers do business on their own, that is, they work exclusively on their own behalf, while brokers represent the interests of their clients, spending their finances and money.

Instruments

The modern financial market provides potential investors with ample opportunities in terms of investing funds through the purchase of monetary obligations of a large number of economic entities, and such obligations are commonly called "financial instruments". In particular, this includes bonds, shares, certificates of deposit, bills of exchange, futures contracts and many other securities.

Due to a wide variety of available instruments, the influence of finance allows their owners to diversify their own investment portfolio, that is, to distribute savings against the obligations of various organizations and banking structures. At the same time, one must correctly understand that such obligations will have different profitability, but at the same time they will differ and a different degree of riskiness. If a certain company eventually becomes bankrupt, then in that case investments will be saved in others, therefore portfolio diversification is always carried out according to the principle "you can not put everything in one basket".

Relations

Financial relations are directly related to the distribution, redistribution and further use of funds. At the same time, it is worth noting that their main phenomenon arises in the process of distribution of primary incomes.

Financial relations, which are formed in connection with the money and directly serve the circulation of funds, apply to virtually all legal and physical persons. The main participants are:

• All producers, regardless of the specific field in which they operate;
• State and population;
• Specialized financial institutions and banking structures;
• Non-profit and budget organizations.

In the process of their development, financial relations also create credit, after which they begin to exist, interacting closely with them.

Functions

Finance is a social relationship in the formation, distribution and further application of funds of funds, which is their main essence.

Financial relations are formed in specific socio-economic conditions created by the development of civilization. The main conditions for their appearance are:

• The 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 funds;
• 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.

Distributive

This function is the most important, because it maximizes their essence. It consists in the fact that the price newly created in the economic system should be distributed in full accordance with the basic needs of the state and society, and the finances themselves are the instrument used to achieve this goal. On the one hand, their formation is carried out at the expense of the incomes received, but on the other, expenditures of budgetary and extra-budgetary funds ensure the formation of secondary incomes, which ensures the distribution and further redistribution of GNP through financial systems.

The content of this procedure is the movement of profit, since it passes through all these processes. In this connection, primary and secondary distribution is allocated.

In general, it is customary to distinguish three main stages of the revenue movement, in accordance with which primary, secondary and final profits are formed.

Primary income is created through the distribution of revenues derived from the sale of goods. The amount of the profit is divided into a fund through which the material costs incurred in the production process are recovered, as well as the salaries of employees, and the profit of the owner. Thus, the main revenues that the owner of production factors receive, but also include indirect taxes established by the current legislation.

In the second stage, the payment of direct taxes, insurance payments for social insurance is made from primary incomes, as well as assistance to disabled people is provided. At the same time, out of newly formed funds of funds, including also budgets of different levels of government and all kinds of extra-budgetary funds, payments are made that are expenses of employees of the non-material sphere, teachers, doctors, employees, notaries, military and many other structures.