Topic 1. Finance in a market economy

1.1. The place and role of finance in a market economy

The economic system of any state is based on objective economic laws.

Modern states manage a market economy with the help of the state structure of the national economy, the financial tax system, and the monetary system.

A market economy is an economy based on the relationships that arise when buying and selling goods on the market. Various economic entities (entrepreneurs) and legal entities (business entities) participate in market relations.

The market refers to the socio-economic conditions for the sale of goods. Market

- this is the sphere of manifestation of economic relations between producers and consumers of goods, between the value and use value of goods.

In a market economy, it is very important to know exactly the economic essence and the content of its categories.

Money, fulfilling its functions as a means of circulation, is an intermediary between the act of purchase and the act of sale; in this function, money becomes capital. Capital

- this is money put into circulation and generating income from this circulation. The circulation of money is investing it in business, lending it out, renting it out. Thus, money creates the conditions for the emergence of finance as an independent sphere of functioning of monetary relations. Finance

- a system of monetary relations expressing the formation and use of monetary funds in the process of their circulation.

According to its role in social production, finance includes two parts:
Public finance,

- finances of an economic entity.

Each link performs its own tasks and is assigned a special financial apparatus, but together they form a single financial system.

In a market economy, the role of finance has increased significantly; its position in the market, competitiveness, survival and prospects depend on the financial position of an enterprise.

The role of finance in the economy is diverse, but, nevertheless, it can be reduced to three main areas:
1. Financial support for the needs of expanded production.
2. Financial regulation of economic and social processes.

Financial support for the needs of expanded reproduction means covering costs using financial resources (own, borrowed, attracted).

Financial regulation of economic and social processes is the second direction of the impact of finance on economic development. Regulation of the economy is carried out through the redistribution of financial resources: it is enough to allocate financial resources and the pace of development of an industry or region accelerates, or vice versa, the cessation of financing can strangle any production.

Financial incentives for the efficient use of all economic resources are carried out using various methods:

Through the effective investment of financial resources;
- creation of incentive funds (consumption funds, social sector funds, etc.);
- use of budgetary incentives (the provision of benefits when paying taxes is always stimulating in nature, an example would be the exemption from payment of many types of taxes on rural and farm enterprises in order to ensure their growth and development);
- use of financial sanctions (fines, penalties for late payment of taxes, concealment of income and property from taxation, failure to submit tax returns, etc.).

1.2. The essence and function of finance

- this is money put into circulation and generating income from this circulation. The circulation of money is investing it in business, lending it out, renting it out. Thus, money creates the conditions for the emergence of finance as an independent sphere of functioning of monetary relations. is an economic category, and any economic category expresses certain economic relations. Financial relations have a number of features compared to other economic relations:

Money relations;
- distribution relations;
- are associated with the formation and use by the fund of funds from the state and economic entities.

These features made it possible to distinguish financial relations from the general mass of economic relations.

Cash funds are formed at the macro and micro levels. At the macro level, these include: the state budget, state extra-budgetary funds, state insurance funds, which represent a system of monetary relations between the state, on the one hand, and legal entities and individuals, on the other. At the micro level, these are funds of own, borrowed and attracted funds.

In turn, the equity capital of enterprises includes authorized, additional and reserve capital; savings, consumption and social funds; retained earnings. Borrowed funds include credits and loans, attracted funds include accounts payable. Monetary relations at the micro level include relations between supplier and consumer, between an enterprise and its structural divisions, between enterprises and the financial and credit system, etc.

Finance is a set of economic relations that reflect the formation and use of funds of funds in the process of their circulation. The essence of finance is manifested in its functions. Finance performs two functions: distribution and control.

Distribution function of finance means the participation of finance in monitoring the effective use of all types of economic resources. Control functions are performed by many financial bodies: the Accounts Chamber of the Russian Federation, the Control and Audit Department and the Treasury of the Ministry of Finance of the Russian Federation; State Customs Committee; Ministry of Taxes and Duties; Federal Tax Police Service; Federal Commission for the Securities Market; Department of Insurance Supervision of the Ministry of Finance of the Russian Federation; control and audit departments of line ministries and departments;

financial management and financial departments of companies; audit commissions in joint-stock, cooperative and public organizations; independent audit firms, etc.

1.3. Structures of the financial system and governing bodies of the financial system - Financial system

this is a set of blocks, links, sub-links of financial relations.

The financial system of the Russian Federation consists of three large blocks:
Public Finance;
- local finances;

- finances of legal entities and individuals. Public finance reflect economic relations on the formation and use of centralized funds of funds intended to ensure that the state performs its functions.

Public finances include the state budget and state extra-budgetary funds. In terms of its place in the financial system, the state budget represents the main financial plan of the state for the current financial year, which has the force of law. In terms of its material content, the state budget is a centralized fund of state funds. In terms of socio-economic essence, it represents the main instrument for the distribution and redistribution of GNP and national income of the state.

The state budget performs the following functions:
Redistributive (up to 50% of the country’s national income is redistributed through the state budget);
- regulatory (the pace and proportions of economic development are regulated through the state budget);
- stimulating (budgetary relations are aimed at stimulating the effective use of all economic resources and, first of all, budgetary funds);

- control (control over the rational use of financial resources is carried out through the state budget).

According to the level of management, the state budget is divided into the federal budget and the budgets of the constituent entities of the Russian Federation. - Federal budget This is the republican budget of the Russian Federation. Budgets include republican budgets of the republics within the Russian Federation, budgets of autonomous regions and districts, regional budgets, budgets of Moscow and St. Petersburg. According to the Constitution of the Russian Federation, local self-government is separated from the state government system. Local budgets - these are district, city, district budgets, budgets of towns and rural settlements; district budgets in cities.

State extra-budgetary funds - This is a form of accumulation and redistribution of funds used to meet social needs and additional financing of territorial needs. Extra-budgetary funds are created at the federal and territorial levels and have a specific purpose. Extra-budgetary funds include the Pension Fund, the Social Insurance Fund, the Mandatory Medical Insurance Fund and the Employment Fund.

Finance of legal entities and individuals - this is a set of economic relations for the formation and use of monetary funds of organizations, entrepreneurs, individuals, intended to ensure the process of expanded reproduction. The finances of legal entities are divided into two groups: finances of commercial and finances of non-profit organizations. The finances of individuals can include the finances of entrepreneurs who are not registered as legal entities and the finances of other individuals.

The financial system is not just a sum of blocks, links and sub-links. This is truly a system that represents a single whole; all the components of this system are closely interconnected by numerous types of economic ties and relationships.

The structure of the financial system is shown in Fig. 1.1.

Rice. 1.1. Financial system of the Russian Federation

A special place among these bodies is occupied by the Ministry of Finance of the Russian Federation, whose main tasks are:

Improving the budget system of the Russian Federation and developing fiscal federalism;
- development and implementation of a unified financial, budgetary, tax and currency policy of the Russian Federation;
- concentration of financial resources in priority areas of socio-economic development of the Russian Federation;
- development and ensuring the execution of the federal budget, drawing up a report on the execution of the federal and consolidated budget of the Russian Federation;
- development and implementation of government borrowing programs, management of internal and external debt of the Russian Federation;
- development and implementation of a unified policy in the development of financial markets of the Russian Federation;
- participation in the development and implementation of a unified policy in the field of formation and use of state resources of precious metals and precious stones;
- development of a unified methodology for drawing up budgets at all levels and reports on their execution;
- implementation of state financial control;
- methodological management of accounting, reporting and auditing in the Russian Federation.

Financial management includes financial planning, organizing financial management, promoting the implementation of financial plans and financial control. Financial management is carried out by developing financial policies and implementing them.

The initial stage of financial management is the preparation of financial plans, the main form of which is budgeting. At the macro level, this is the development of draft budgets (federal, regional), at the micro level, this is the preparation by organizations of forecast balances of income and expenses, accounting balances, cash flow balances, etc. The quality of financial plans depends on the accuracy of socio-economic forecasts and the depth of analysis of financial activities for previous periods.

Based on the approved financial plans, the process of their implementation is organized. At the macro level, budget execution is entrusted to the Federal Treasury. The execution of federal budget revenues is carried out on the basis of reflecting all operations and funds of the federal budget in the system of balance sheet accounts of the Federal Treasury. It provides:

Transferring income to a single federal budget account;
- distribution of federal regulatory taxes;
- refund of overpaid amounts of income;
- accounting of income and preparation of income reporting.

Financing of federal budget expenses includes:

Authorization to make a payment;
- making a payment.

At the micro level, organizing the implementation of a financial plan means managing the assets and liabilities of the enterprise. Asset management includes the management of non-current (investments in fixed assets and intangible assets, long-term financial investments) and current assets (inventories and costs, accounts receivable, cash, etc.). Operational financial management involves making financial decisions based on relevant information.

The need to fulfill financial plans requires stimulation of their implementation. In a market economy, economic incentive methods predominate. For example, in order to reduce accounts receivable, a financial manager can use the following measures:

Prepayment of bills;
- offset transactions;
- commodity exchange (barter) operations;
- replacement of debt with a loan obligation with payment of interest;
- deposit;
- bank guarantee or surety;
- deposit;
- assignment, i.e. assignment of rights of claim;
- factoring - the purchase by a specialized financial company of the supplier’s monetary claims to the buyer and their collection;
- accounting of bills, etc.

The final stage of the financial management process is financial control. The main forms of financial control are preliminary, current and subsequent control. Financial control over the use of budget funds is carried out at the macro level by the Federal Treasury and the Ministry of Finance of the Russian Federation - the main managers and administrators of budget funds.

The Federal Treasury exercises control over the conduct of transactions with budget funds of participants in the budget process, coordinates the work of other executive authorities in the process of exercising financial control. The Ministry of Finance of the Russian Federation exercises internal control over the use of budget funds, the main managers, administrators and recipients of budget funds; over the execution of budgets of constituent entities of the Russian Federation and local budgets; over the use by legal entities of budget credits, budget loans and budget investments.

The main managers and managers of budgetary funds control the use of budgetary funds by their recipients in terms of their intended use and timely return. At the micro level, financial control can be carried out by the control and audit departments of the Ministry of Finance of the Russian Federation and line ministries, audit commissions of the enterprise itself, independent audit firms, etc.

One of the main features of finance is its monetary form of expression and reflection of financial relations with real cash flows.

The real movement of funds occurs at the second and third stages of the reproduction process - in distribution and exchange.

At the second stage, the movement of value in monetary form occurs separately from the movement of goods and is characterized by its alienation (transition from the hands of some owners to the hands of others) or the targeted separation (within one owner) of each part of the value.

In the third stage, the distributed value (in monetary form) is exchanged for the commodity form. There is no alienation of value itself here.

Thus, at the second stage of reproduction there is a one-way movement of the monetary form of value, and at the third there is a two-way movement of values, one of which is in monetary form, and the other in commodity form.

Since at the third stage of the reproduction process there are constantly ongoing exchange transactions that do not require any social instrument, there is no place for finance here.

The area of ​​origin and functioning of finance is the second stage of the reproduction process, at which the value of the social product is distributed according to its intended purpose and business entities, each of which must receive its share in the produced product. Therefore, an important feature of finance as an economic category is the distributive nature of financial relations.

Finance differs significantly from other economic categories that operate at the stage of value distribution: credit, wages and prices.

The initial sphere of emergence of financial relations is the processes of primary distribution of the value of the social product.

When this value breaks down into its constituent elements, various forms of monetary income and savings occur.

Further redistribution of value between business entities and specification of its intended use also occurs on the basis of finance.

The distribution and redistribution of value through finance is necessarily accompanied by the movement of funds, which take a specific form of financial resources.

They are formed by business entities and the state through various types of cash income, deductions and receipts, and are used for expanded reproduction, material incentives for workers, and satisfaction of social and other needs of society.

Financial resources act as material carriers of financial relations, which makes it possible to distinguish finance from the general set of categories involved in cost distribution. This occurs regardless of the socio-economic formation, although the forms and methods by which financial resources are generated and used have changed depending on the change in the social nature of society.

The use of financial resources is carried out mainly through monetary forms for social purposes, although it is possible that they are not used in a stock form.

The advantages of the stock form include: the ability to more closely link the satisfaction of any need with economic opportunities, ensuring the concentration of resources on the main directions of development of social production, the ability to more fully link public, collective and personal interests.

Based on the foregoing, the following definitions can be given: finance is monetary relations arising as a result of the distribution and redistribution of the value of the gross social product and part of the national wealth in connection with the formation of cash income and savings among business entities and the state.

And also using them for expanded reproduction, material incentives for workers, meeting social and other needs of society.

The condition for the functioning of finance is the availability of money, and the reason for the emergence of finance is the need of business entities and the state for resources that support their activities.

Finance is indispensable because it makes it possible to adapt the proportions of production to the needs of consumption, ensuring in the economic sphere the satisfaction of constantly changing reproductive needs. This occurs through the formation of special-purpose monetary funds.

The development of social needs leads to changes in the composition and structure of monetary (financial) funds created at the disposal of business entities.

With the help of public finance, the scale of social production is regulated in sectoral and territorial aspects, the environment is protected and other social needs are met. Finance is objectively necessary, as it is determined by the needs of social development. The state can, taking into account the objective need for financial relations, develop various forms of their use: introduce or abolish various types of payments, change the forms of use of financial resources, etc.

The state cannot create something that is not objectively prepared by the course of social development.

It establishes only the forms of manifestation of objectively mature economic relations.

Without finance, it is impossible to ensure the individual and social circulation of production assets on an expanded basis, regulate the sectoral and territorial structure of the economy, stimulate the rapid implementation of scientific and technological achievements, and satisfy other social needs.

Finance is an integral part of monetary relations, therefore their role and significance depend on the place monetary relations occupy in economic relations.

However, not all monetary relations express financial relations. Finance differs from money both in content and in the functions performed.

Money is a universal equivalent, with the help of which the labor costs of associated producers are primarily measured, and finance is an economic instrument for the distribution and redistribution of gross domestic product (GDP) and national income, an instrument for controlling the formation and use of funds of funds.

Their main purpose is to ensure, through the formation of cash income and funds, not only the needs of the state and enterprises for funds, but also control over the expenditure of financial resources.

Finance expresses the monetary relations that arise between:

• - enterprises in the process of acquiring inventory, selling products and services;
• - enterprises and higher organizations when creating centralized funds of funds and their distribution;
• - by the state and enterprises when paying taxes to the budget system and financing expenses;
• - by the state and citizens when making either taxes or voluntary payments;
• - enterprises, citizens and extra-budgetary funds when making payments and receiving resources;
• - individual parts of the budget system;
• - property and personal insurance authorities, enterprises, the population when paying insurance premiums and compensation for damage, upon the occurrence of an insured event;
• - monetary relations mediating the circulation of enterprise funds.

The main material source of monetary income and funds is the country's national income - the newly created value or the value of the gross domestic product minus the tools and means of production consumed in the production process. The volume of national income determines the possibilities of meeting national needs and expanding social production.

It is by taking into account the size of the national income and its individual parts - consumption income and the accumulation fund - that the proportions of economic development and its structure are determined.

This is why all countries attach importance to national income statistics. Without the participation of finance, national income cannot be distributed.

Finance is an integral link between the creation and use of national income. Finance, influencing production, distribution and consumption, is objective in nature. They express a certain sphere of production relations and belong to the basic category.

A modern economy cannot exist without public finance.

At certain stages of historical development, a number of needs of society can only be financed by the state. These are the nuclear industry, space research, and a number of new priority sectors of the economy.

Also enterprises that are necessary for everyone (post office, telegraph and some others).

Finance reflects the level of development of production forces in individual countries and the possibility of their influence on macroeconomic processes in economic life. The state of the country's economy determines the state of finances.

In conditions of constant economic growth, an increase in GDP and national income, finances are characterized by their sustainability and stability; they stimulate the further development of the production of life of the country's citizens.

Finance as a scientific concept is usually associated with those processes that appear on the surface of social life in various forms and are necessarily accompanied by the movement (cash or non-cash) of funds. Whether we are talking about the distribution of profits and the formation of intra-economic funds at enterprises, or the transfer of tax payments to state budget revenues, or the contribution of funds to extra-budgetary or charitable funds - in all these and similar financial transactions, cash flow occurs.

To understand the essence of finance, it is necessary to identify those general properties that characterize the internal nature of all financial phenomena.

If we ignore the numerous specific forms in which financial processes take place, we can see the common thing that unites them - the underlying relationships between the various participants in social production, or social relations, that underlie financial transactions.

Finance is a set of economic relations in the use, formation and distribution of funds of funds.

Financial distribution

The role of finance is to distribute and redistribute it to various sectors of the economy. With a stable economic situation and sound financial policy, the injection of cash flows into a certain problem area can have a positive impact on the overall economic and social development of the country. Most often, financial resources are distributed among various sectors of the economy, individual regions and entities, economic activities, in accordance with a pre-drafted and approved government plan.

At the micro level, in the conditions of a single enterprise, finances can be distributed to various structures of the organization to solve production, economic and other problems.

There are several types of financial distribution:

• on-farm;
• intra-industry;
• intersectoral;
• interterritorial;
• interstate.

Reproductive function of finance

The reproductive function of finance, the manifestation of which is reflected by indicators of profitability and liquidity of assets, is to ensure the necessary balance between material, labor and monetary resources. Reproduction is relevant at every stage of capital turnover, and does not depend on the scale of the process of production of economic goods.

Finance is also a basic element of labor force reproduction. In addition to wages, the cost of reproduction includes expenses for health care, education and social security.

Financial monitoring

Financial monitoring is external and internal control of the financial activities of organizations performing various types of transactions using funds.

External monitoring implies the implementation of the state’s financial policy, which creates the necessary conditions for the circulation of capital within the country. For this purpose, control bodies have been formed through the legislative branch (the Accounts Chamber of the Russian Federation) and the executive branch (government or presidential control).

Internal control allows you to consider the scale of the organization and production capacity at a single enterprise.

Stimulating function of finance

The stimulating function of finance lies in the possibility of its influence on various processes occurring in the economic environment. Innovative projects and strategically important structures, technological and labor-intensive production sectors are priorities in the economic development of the state.

Stimulating the most important economic sectors with financial resources is due to:

• introduction of tax benefits;
• reduction of tax rates;
• limiting the tax base;
• exemption from tax payments.

Social function of finance

The social function of finance is:

• Ensuring the existence of the state. The created national financial funds are used in accordance with the goals declared by the country's leadership.
• Maintenance of the disabled population. Through the formation of a financial pension system, the state supports citizens who are disabled due to their age. As a rule, sources of pension savings are mixed. Part is paid by the state, part by the employer, and part is accumulated by employees throughout their working career.
• Smoothing out material inequality. With the help of social policy, the country's leadership, using budgetary funds, smooths out material differences in people's financial wealth.
• Ensuring the spiritual growth of the population. Financial relations allow the state to redistribute financial resources for the development of science, culture, education and other areas.

Political function of finance

The state, by consistently distributing financial resources, strengthens its internal and external policies. Investing money in the development and restructuring of enterprises in the military-industrial complex has a positive effect on the country's defense capability. In this regard, the state is raising its prestige in the international arena, its political role is noticeably increasing, which has a corresponding impact on economic and political independence.

In conclusion, it should be noted that finance plays a key role in the economy, representing a set of measures and tools for the effective functioning of the economic, political and social systems of the state.

Finance is an important part of the modern economy, with which it is inextricably linked and develops together. The role of finance in the economy is determined by the possibility of finance influencing all stages of the reproduction process, as well as the relationship of finance with other economic categories.

The influence of finance on the reproductive process

The objective prerequisites for the influence of finance on the reproductive process are embedded in the functions of this category:

• the distribution function allows the formation of financial resources and target funds in accordance with the needs of the development of social reproduction as a whole and its individual economic entities;
• The control function reflects the flow of economic processes in society through the movement of financial resources.

The influence of finance on the economy can be quantitative and qualitative. Quantitative influence is characterized by the proportions of mobilized, distributed and used financial resources. Qualitative influence is characterized by the impact on the material interests of participants in the reproduction process.

The possibility of finance influencing social reproduction is associated with two circumstances.

Firstly, finance has the potential to direct and regulate economic processes, accelerating or slowing them down.

Secondly, being a category of distribution, finance serves the entire reproduction process as a whole, i.e., the sphere of their influence is not limited to the area of ​​cost distribution, but also extends to other stages of reproduction.

IN sphere of material production Finance, servicing the circulation of production assets, contributes to the creation of new value. With the help of finance, the revenue and profit of an economic entity are distributed, income, savings and deductions are formed, and targeted funds are formed to meet the various needs of the participants in production and society as a whole. Through quantitative and qualitative influence, finance contributes to changes in the structure and dynamics of production. The redistribution of financial resources between economic entities and territories can create conditions for progressive shifts and increase production efficiency, satisfy the material interests of participants in the production process, or have a negative impact on the course of economic and social transformations.

IN sphere of circulation finance actively influences exchange processes. Thanks to the distribution, target funds are formed among buyers and thereby create conditions for conducting exchange transactions. With the help of finance, the revenue and profit of trading organizations are distributed, and intra-business funds are formed. Finance prepares the conditions for exchange transactions and completes the process of distributing the financial results of activities.

IN sphere of consumption Finance influences the volume and structure of consumption of goods, works, services, satisfaction of social guarantees and solution of social problems.

The relationship between finance and economic categories

In the process of cost distribution, finance actively interacts with price, wages, and credit.

Price is the monetary expression of the cost of a product or service that the buyer must pay to the seller when purchasing the product. With the help of price, the value of the created product receives a monetary expression, on the basis of which the entire distribution process is carried out. This circumstance reflects the essence of the relationship between price and finance.

Typically, the price of a product is set in advance by the seller based on the costs of producing and selling the product, as well as the seller's desired profit margin.

However, price rarely equals value. Under the influence of supply and demand, price fluctuates relative to value. During the sale process, additional funds are transferred to the seller or buyer, which violates the proportions of distribution and prepares the conditions for financial distribution, i.e. changing imbalances with the help of finance.

If the price is higher than the cost, then additional revenue is withdrawn through finance (through taxes). If the price is lower than the cost, then the losses are compensated with the help of subsidies, subsidies, subventions, and budget loans. The state can set low taxes and thus compensate for losses to producers. To protect against losses, producers themselves can create reserve funds and enter into risk insurance agreements (and this is a financial relationship).

With the help of finance, the entire value of the social product is distributed, and with the help of price, only a part is distributed, which consists of deviations of prices from the real values ​​of goods. At the same time, price distribution is primary in relation to financial distribution and prepares the conditions for the latter.

Wages are the monetary expression of the cost of labor. In the process of distributing the social product, the consumed cost of labor power is reimbursed (i.e., the cost of the funds necessary to restore the expended forces, mental energy, etc.). However, a free person cannot be forced to work to cover only his own costs. Funds are needed for expanded reproduction of the labor force and encouragement of additional labor. An appropriate trust fund must be formed to pay wages. The separation of part of the cost in the form of the wage fund is carried out with the help of finance. Financial relations also arise in the process of collecting taxes on wages.

In many ways, credit can be an alternative to finance. Between these two categories there are, on the one hand, differences, and on the other, a close relationship. The difference is that: finance covers the processes of distribution and redistribution, while credit covers only redistribution; the source of formation of financial resources is the entire value of the social product, and credit resources are temporarily free funds of individuals and legal entities; in the case of a loan, money is provided on the terms of urgency, payment, repayment (properties of the loan), and in the case of financial relations, money is provided for a long period, usually free of charge or at a small interest rate.

The relationship between finance and credit is manifested in the constant transformation of financial and credit resources into each other. By participating in the distribution of the gross product created in society in monetary form, finance and credit complement each other: the functioning of finance creates the basis for the formation of credit resources; the functioning of credit allows the formation of financial resources at the disposal of business entities and the state.

Finance, like no other category (price, credit, etc.), makes it possible to adapt (transform) the needs of production to the needs of consumption. Without finance, it is impossible to ensure individual and social circulation of production assets on an expanded basis, regulate the sectoral and territorial structure of the economy, introduce scientific and technical achievements, stimulate and provide for various social needs.

In everyday economic activity, it is not the category of finance itself that is important, but specific forms of manifestation, the types of which are established by the state. By defining the organizational forms of manifestation of the category of finance, it uses them as an active tool for economic management.

As an economic instrument of management, finance is capable of quantitatively and qualitatively influencing social production.

Quantitative influence is characterized by the volume and supply of financial resources mobilized, distributed and used.

Qualitative influence is revealed in the interests of participants in the reproduction process through the forms of organization of financial relations (how financial resources are formed, in what forms and under what conditions their movement and use is carried out).

There are three main directions of financial influence on social development processes:

Many people mistakenly think that finance is directly cash and its equivalents (precious metals, securities, etc.), but in reality, finance is transactions with monetary assets and their equivalents.

The role of finance can be seen in the main functions of financial relations: distribution, use and redistribution of financial resources between market participants. Finance should be generated by creating and investing in various business objects, attracting them from households (private investors), using free funds of enterprises, institutions and organizations, as well as funds in the cash accounts of government bodies when they are temporarily free from business transactions. Their distribution consists of using available funds from business entities and providing them to business entities, individuals and government agencies that need these funds at a given time. It is on these principles that the system of mutual settlements in the form of loans among individuals, legal entities and government institutions is built. The redistribution of finance is manifested in the actions of the state and financial institutions in the system of using the funds of some individuals to ensure the functioning and development of other business entities and individuals.

Enterprises carrying out financial and economic activities cannot do without financial resources; in this case, the role of finance is to provide these entities with the funds that are necessary for the functioning, work and development of both an individual enterprise and the entire industry and even the country’s economy. . To obtain loans and investments, enterprises must turn to financial institutions or private investors who will carry out financial activities in the form of lending and investment. These types of activities are not possible without the use of tools such as financial resources and finances.

Financing is the process of providing and using targeted funds for specific needs with the aim of further generating profit or social effect. The role of finance can be understood as a system that facilitates the implementation of business processes in an enterprise and all other planned financial transactions. Small and medium-sized businesses, like every business entity, need attracted and borrowed funds. It is possible to carry out these processes (borrowing funds) only by using finance in a market economy. Finance assists the economy in the form of changes in the most priority sectors of the economy at a given time.