School of Business and Management of Technology of Bsu

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The notion of "finance" is inseparably linked to the notion of "money turnover". Money turnover is the movement of financial resources and payments during certain period of time. The object of this process is financial resources such as income, credits and debts.

The role and essence of finance is concentrated in its functions, which highlight ways of specific financial features expression. There are four main functions of finance, such as mobilization, regulatory, distribution and control function.[12]

Mobilization function is all about accumulation of resources which are needed to support country performance in the market economy by the government. National income is the main source of the monetary funds.

The regulatory function of finance provides stimulation of the financial relations actors` activity and is associated with the intervention of the state into the process of production through finance. For these purposes, a financial and budgetary planning and state regulation of the securities market are used.

The distribution function of finance provides re-distribution of national income in order to optimize the accumulation and consumption in a particular economic situation.

The control function is implemented due to the fact that economic entities use public funds and have to pay taxes. This particular function ensures control over the inflow of money and its utilization for designated purpose. It is aimed at improving economic incentives, rational use of material, labor and financial resources.[12]

1.2. The finance of households and firms

If we imagen the set of financial relations together with the set of organizations and institutions in which creation, distribution and usage of monetary funds take place, we will come to the financial system. Financial system consists of four main parts: government budget, local finance, finance of government enterprises and specialized governmental funds.

The structure of the market economy is a system of relationships between participants of the commodity-money relations, which expresses their goals, economic interests, forms of organization and interaction concerning the movement of goods and services. The main subjects of market economy are households, firms and government. Household is one of the main actors of the modern economy since both the organization and the government is to meet needs and protect interests of the population.

Talking about households, we are talking about people who live together and are engaged in different activities. It leads to the creation and usage of financial resources and income, formation of total budget. A household is an economic unit, which operates in the consumer sector of the economy, ensures the production of human capital takes decisions independently and seeks to maximum satisfaction of personal needs. Households are not only end users of various benefits, but also are manufacturers of them.

The role of households in the economy is essential, because a large portion of GDP in the form of goods and services is consumed by households, thus we can say that households create demand. Households form savings, which are the source of investment in different sectors of the economy. They are involved in all processes which take place in the economy.[9]

Finance of households represents an objective, really existing monetary relations arising in the process of creation and distribution of monetary funds. These financial relationships can be internal and external.

Internal financial relations are monetary relations which are involved in the creation of family budgets. Those budgets can be used immediately in the long-run perspective or can be invested in the real financial assets.

External financial relations are monetary relations between households and government concerning taxes and other obligatory payments; between insurance companies in the process of insurance funds creation; between banks in the process of taking consumer loans, their repayment and payment of interest rate.

Finance of households is involved in both primary and secondary distribution of the overall social product value. Payment of wages is the primary distribution and receipt of social transfers, such as pensions and subsidies is the secondary one.

Finance of firms is the economic and monetary relations which are the result of movement of money. This movement can be considered as bases for the functioning of various monetary funds.

It is possible to talk about finance of firms as a part of financial system which covers the process of creation, distribution and usage of GDP in monetary terms. Finance operates in the sphere of material production of aggregate national product and national income.

In the process of economic activity of firms certain financial relations connected with production setup, realization of products, building of financial resources, distribution and use of income take place.

Financial relations of firms consist of four groups.

- Relations with other firms and organizations;

- Relations within firms, which include relations with parent organization; within the industrial groups and holdings;

- Relations with the financial and credit system – budgets and extra-budgetary funds, banks, insurance, stock exchanges, various funds.

Financial relations with other firms and organizations include relations with suppliers, customers, transportation and foreign trade organizations, custom, enterprises, organizations and firms of foreign countries.

The largest group according to the volume of monetary payments is the group which corresponds to the relation of firms with each other. The role of this group is extremely important because in the sphere of material production it gives us the creation of national income and revenue of firms.

Financial relations within firms can be divided into two parts:

- relations between subsidiaries, departments etc.,

- relations with employees.

The first group of relations is connected with the payment for work and serveries done and distribution of revenue. The second group is about such payments as salary, some bonuses, allowance, dividend etc.

Financial relations of firms with parent organizations include relations concerning education – financing of scientific, marketing research and usage of