Fundamentals of finance theory

o no mic
Ec ns (in
io
relat nd)
ki

Money relations
Financial
relations
Money - this is a product that spontaneously emerged in the
process of development of commodity production and exchange
and became the equivalent of the value of all other goods

G-G
M-G-M'
G-M M-G
Functions of money
Medium
Measure Store of
of
of value value
exchange
Instrumen
World
t of
money
payment

T-D THAT O-D

Money circulation is the movement of money when
performing its functions (or the movement of money serving
the sale of goods and services).
Cash
Cashless
Money supply is the total volume of cash and non-
cash money, or the amount of money in circulation.
Monetary aggregates are statistical indicators of the
structure of the money supply. They are formed from
various parts of monetary circulation, included in
monetary aggregates in accordance with their
inherent level of liquidity.
Monetary aggregates in Russia
 Quantity of money in circulation
M=(P*Q – C – P) / V
where:
P*Q – value of all goods sold per period of time;
C – value of goods sold on credit;
P – credits payout;
V – money velocity.
 Prerequisites for the emergence of finance

Development of Transforming
commodity -money Creation of a
relations, growth of
money into centralized state
production capital
Signs of finance

Distributive
Cost nature
nature

Formation
and use of Circulation
funds of character
money
Socio-economic function of finance
Finance means money relations between entities, i.e.
The material basis for the existence and functioning
of finance is money and money turnover.
Subjects of financial relations :
state,
companies,
various associations and organizations,
individual citizens
 Socio-economic function of finance

Relations between subjects of financial relations are

regulated by imperative norms, and one of them –
the state – is endowed with authority.
The result of these relationships is the formation
national budget
Mobilization of funds into the budget takes the form
of forced taxation
conclusions
Finance is both an economic and historical
category.
There are two stages in this process:
1. financial relations were associated exclusively
with the formation and use of the budget
2. multi-link financial systems, a high degree of
regulatory influence on the economy, a wide
variety of financial relations
 Principles of Finance
1. the principle of unity of the legislative and
regulatory framework, unity of monetary, credit and
tax systems, etc.
2. target orientation
3. diversification of sources of financing and areas of
investment.
4. organization in time
Finance functions
distribution
control
regulating
Distribution function of finance
Creation of basic (primary) income . Their sum is
equal to national income.
Basic income is formed through the redistribution of
national income among participants in material
production.
As a result of redistribution, secondary
(derivative/distributed) income is formed .
The ultimate goal of the redistribution of national
income and gross domestic product is the
development of productive forces, the creation of
market structures of the economy, the strengthening
of the state, and ensuring a high quality of life for
the general population
Control finance function
Financial control is a set of actions and operations to
verify financial and related issues of the activities of
business and management entities (state, enterprises,
institutions, organizations) using specific forms and
methods of its organization.
carried out by legislative and executive authorities of
all levels, as well as specially created institutions;
associated with the use of cost categories;
is designed to ensure both the interests and rights of
the state and its institutions, and all other economic
entities.
 Objectives of financial control
 ensuring compliance with the legality of financial
activities;
 bankruptcy prevention;
 ensuring the correctness and timeliness of fulfillment of
obligations to the state;
 identifying internal reserves and increasing the efficiency
of enterprises through more rational use of resources;
 checking the correctness of accounting. accounting;
 determining the extent of damage;
 identification and research of possible responsibilities of
managers, etc.
Regulatory function of finance
State intervention through finance (public spending,
taxes, public credit) in the reproduction process.
Regulation of the economy through the finances of the
enterprise itself - in this case, the enterprise itself
determines the proportions between accumulation and
consumption and other proportions.
Financial incentives
Methods:
through efficient investment of financial resources
through the creation of incentive funds
through the use of budget incentives
through the use of financial sanctions
Financial mechanism
Financial methods- investing, taxation,
diversification, hedging, limiting, etc.
Financial leverage- price, profit, interest, dividend,
discount, etc.
Financial mechanism - financial planning,
organization and implementation of financial
plans, stimulation of their implementation and
financial control
Financial system
 Financial system

Centralized finance Decentralized

finance
State and local Public finances
budgets
Finance of commercial
Off-budget funds organizations

Nonprofit Finance
State loan

State insurance
Centralized finance
State budget system of the Russian Federation
consists of three independent units:
federal budget of the Russian Federation;
budgets of administrative-territorial entities
municipal budgets
Budget system of the Russian Federation
Extra-budgetary funds of the Russian Federation
(these are funds of the Government of the Russian
Federation and local authorities related to the
financing of expenses not included in the budget)
State loan (the state acts as a borrower of funds)
Property and personal insurance funds (for
compensation of damage caused by natural disasters
to enterprises and the population, as well as for
payment of material support to the insured person or
his family in the event of an insured event)
Decentralized finance
Finance of commercial enterprises and organizations

This is a relatively independent link in finance; it serves

material production, the creation of gross domestic
product, its distribution within enterprises and the
redistribution of part of this product to the budget and
extra-budgetary funds.
It is the primary income of private and public
enterprises, along with the income of individuals, that
creates the basis of the public finance system.
Household finance
Economic relations arising from the real circulation of
money in the household sector.
Household finances are the material basis of their lives.
They involve control over future income and expenses
within a separate economic unit of society.
Sources of financial resources
 Sources of financial resources

The level of households State level

and private firms

salary Own funds privatization

profit from equities and earnings of government
interest corporations/entities
other revenues income from foreign
economic activities

Interest and dividends Funds received through Necessary payments (taxes,

redistribution fees, duties)

Buying and selling Funds raised on the market Through emission of money
securities
Emission of equity and debt

Credit Emission of government

notes and bonds
 Financial system

Centralized finance Decentralized finance

national finances finances of business entities
• Ensuring GNP growth • Basis of the financial
rates system
• Redistribution • Creating value
between industries and
regions
• Redistribution
between production
and non-production
spheres
• Redistribution
between different
The financial policy of the state is part of the socio-
economic policy of the state to ensure balanced growth and
efficient use of financial resources in all parts of the country’s
financial system.
Financial policy consists of the following main components:
 tax policy;
 budget policy;
 monetary policy;
 pricing policy (regulation of prices and tariffs of natural monopolies);
 customs policy;
 social policy;
 investment policy (public investment, creating conditions for the
organized accumulation and investment of population savings,
attracting foreign direct investment);
 policies in the field of international finance (settlement of external debt,
entry into international organizations, regulation of the ruble exchange
rate).
Financial policy of the Russian
Federation
The financial policy of the Russian Federation is
based on the following system of socio-
economic priorities:

achieving social stability in society;

improvement of public finances;
restoration of normal functioning of the credit
system;
Financial mechanism is a set of forms, types and
methods (methods) of organizing financial relations
established by the state. The financial mechanism is
the outer shell of finance, which manifests itself in
financial practice (in reality).

Financial control is:

- State
- Non-state
- In-house
- From commercial banks
- Audit (internal) control
 conclusions
Finance as an economic category depends on the relationships
between the links of the financial system.
The basis of the unity of the financial system is the finance of
enterprises.
General state finances are connected with the finances of
enterprises, since they have a single source of formation - the
national income created in the sphere of material production.
In this interrelation and interdependence of the constituent parts
of the financial system, the unity of finance is manifested, as well
as the unity of the financial system
Financial policy
Main components of financial policy:
1) tax policy;
2) budget policy;
3) monetary policy;
4) pricing policy;
5) customs policy;
6) social policy;
7) investment policy;
8) policy in the field of international finance
 Financial policy
Main goals:
providing conditions for the formation of the maximum possible financial
resources;
establishing a rational distribution and use of financial resources from the
state’s point of view;
organization of regulation and stimulation of economic and social processes
using financial methods;
development of financial mechanism instruments and its development in
accordance with the changing goals and objectives of the strategy;
creation of an effective and business-like operational financial management
system
 maintaining a balance of natural material and cash flows;
 achieving financial and economic independence and strengthening the
responsibility of regions within a single federal state;
 creating equal conditions in the fiscal sphere for the regions;
 creating conditions to suppress financial abuse and corruption
Tax policy
The main tasks of modern tax policy of the Russian
Federation:
1) further improvement of domestic tax legislation in order
to optimize the tax base and reduce the level of non-
payments;
2) optimization of tax benefits and preferences;
3) tighter control over the registration of taxpayers;
4) rationalization of tax administration;
5) restructuring, in justified cases, of debts on payments to
the budget and state extra-budgetary funds
 Budget policy of the Russian Federation
- determination of the share of gross domestic
product mobilized into the budget;
- establishing optimal relationships between
federal authorities and authorities of constituent entities of the Russian
Federation;
- optimization of the budget expenditure
structure;
- distribution of expenses between budgets of
different levels;
- public debt management

In the context of the modern budget crisis,

the priority tasks of budget policy include:
1) widespread savings in public funds;
2) centralization of all income and funds
of the federal budget in the accounts of the Federal Treasury;
3) restructuring of public debt;
Credit policy
Main instruments and methods of monetary policy of
the Central Bank of the Russian Federation:
interest rates on operations of the Central Bank of the
Russian Federation;
standards for mandatory reserves deposited with the
Central Bank of the Russian Federation (reserve
requirements);
open market operations;
refinancing of credit institutions;
foreign exchange interventions;
establishing benchmarks for money supply growth;
direct quantitative restrictions;
issue of bonds in one's own name
 Money-credit policy
Pricing policy (regulation of prices and tariffs for monopoly goods and services.)
Customs policy is an organic part of tax and pricing policy, since customs duties
and taxes have a direct impact on the price of goods and services.
social policy is closely related to its actions in the financial sector and boils down
to the following activities:
 coordination between the volumes of financial assistance (transfers) to the
constituent entities of the Russian Federation and their fulfillment of
obligations to finance the budgetary sector from their own income;
 streamlining the system of social benefits and payments with the transfer of the
bulk of state assistance to low-income segments of the population;
Investment policy
1) increasing the role of the development budget of the Russian Federation as a
source of financial support for state investment policy;
2) creating conditions for the organized accumulation and investment of savings of
the population;
3) development of mortgage lending;
4) attracting foreign direct investment
 Policy of the Russian Federation in the
field of international finance
Priorities:
integration into the global financial system;

efforts to recognize the Russian Federation as a country with a market

economy;
joining international organizations (in particular, the World Trade

Organization);
settlement of the external debt of the Russian Federation (primarily with

participants in the Paris and London creditors clubs);

strengthening the position of the Russian Federation in the International

Monetary Fund and the World Bank for Reconstruction and Development;
increasing the stability of the ruble exchange rate against foreign currencies;

full-scale participation of the Russian Federation in the BRICS group