Finance reflects the synthesis of economic relationships generated in the process of distributing financial resources, specifically loans and lending, affecting the money supply in the market. The essence of finance is the economic relationship among the entities of the economy.
Finance is a term within the scope of economics, reflecting the distribution relationship of social wealth in the form of value generated in the process of establishing, creating, and distributing monetary funds to achieve the goals of the entities under certain conditions. The two fundamental reasons for the emergence of finance are the production of goods and currency, and the appearance of the state.
In addition to being within the scope of economics, finance is also a historical domain that emerged and developed with the economic development of commodity.
Finance, also known as Finance in English, reflects the synthesis of economic relationships that arise in the process of distributing financial resources. Narrowly understood, finance reflects the monetary transactions of a government of a nation. In a broader sense, finance reflects loans and lending, affecting the money supply in the market.
What is the essence of finance?
The essence of finance is the economic relationship among the entities of the economy. In the process of operation, methods of operation and monetary transfers between entities arise, which are the relationships in the distribution and use of financial resources.
In terms of phenomena, finance manifests as methods of operation related to the circulation of money between economic entities:
Individuals and businesses engage in business activities, buying and selling goods, services, and paying taxes to the government.
Governments mobilize capital by issuing bonds, combined with tax revenue collected. The state uses this money to allocate funds for activities such as security, national defense, education, health care, culture, and social welfare (social insurance, policies for veterans, families of martyrs, disaster relief).
Individuals deposit money into financial institutions (banks, brokerage firms, insurance companies...).
Businesses are supported by the state to continue investing in expanding production and business activities.
The Role of Finance
Finance is a tool for distributing national products: Through the distribution process, monetary funds are formed for various parts of the financial system. State monetary funds are used to achieve social goals.
Finance is a tool for managing and regulating the macroeconomy: Finance regulates the macroeconomic system by impacting economic relationships according to the direction of the state, guiding businesses to produce and trade in line with the state's economic policies. It controls and adjusts economic relationships to adapt to the fluctuations of the economy.
The financial system is a network - where various transactions or sales of different financial instruments take place. Components of the financial system include:
Public finance reflects economic relationships in the process of establishing and using public funds, that is, the synthesis of all monetary activities of the state. Its purpose is to carry out the functions of the state to serve the common interests of society.
It is a system that reflects the movement and transformation of financial resources, currency of the enterprise to serve the production and business activities of the business itself.
Many businesses use financial leverage as a tool to increase income and profits for shareholders. However, the use of this tool must be carefully calculated to ensure the financial stability of the enterprise and avoid risks.
In corporate finance, financial reporting is mandatory to provide information on business activities and the flow of funds of the enterprise. Financial reporting is done by accounting, collecting, and verifying data to produce complete financial statements. Reporting deadlines must comply with regulations issued by the state.
The financial market is where entities can exchange securities, commodities, services, or valuable items. Simply put, the financial market is where various payment instruments and financial instruments are traded.
International finance reflects economic relationships between countries and between international financial institutions and member countries when trading goods, services, and capital flows.
In addition, the financial system also includes personal and household finance, and the finance of intermediary organizations (credit and insurance).