Chapter 2.

Fundamentals of Financе
2.1 What is Finance?
Finance is the allocation of assets, liabilities, and funds over time, process,
mediums to reap the most out of the activity.

■ Finance science → the study of the management of funds

■ Main Question → how and why an individual, company or government
acquires the money needed and how they spend or invest that money
■ Main features:
Money (stem) form;
Distributive content;
Target (fund) nature;
Imperative nature (financial relations in society are determined by the state).

Classical Theory of Finance (the
middle of the twentieth century)
Finance is an economic category in
form of relations that are associated
with the formation, distribution and
use of funds to ensure the conditions
of economic reproduction*.
Neoclassical Theory of Finance (from the middle of the
twentieth century till now)
❖ Finance is a system of knowledge about the
organization and management of financial triad:
resources, relationships, markets.
Finance covers processes, institutions, markets and
instruments related to the circulation of funds between
individuals, firms and governments.
❖ Finance (Financial Economics) - a science covers
issues of distribution of insufficient funds over time in
terms of uncertainty, which includes Portfolio theory;
Capital asset pricing theory; Capital structure theory;
Agency theory; Efficient markets theory; Risk
management theory etc.
❖ Finance - the relationship between entities that lead
to changes in its assets and / or liabilities.