The objective need for the existence of finance is explained by the need of economic entities (enterprises, organizations, institutions), and to some extent households and the state, for resources to ensure their normal activities. This need for money resources could not be satisfied without finance. Thanks to finance, in the process of economic management, the need for production in working capital and investments for the expansion of fixed capital is provided. Proceeds to business entities cash proceeds from sold products (gross income) are distributed in such a way that the need for various financial resources is satisfied.
State needs occupy a large place in the composition of the needs in money. The state plays an important role in regulating the structure of production, in developing the social and cultural sphere, in protecting the environment, and in ensuring the security of the country and its citizens. Exactly due to functioning of finances the state has an opportunity to have budgetary and non-budgetary monetary funds, at the expense of which national needs are satisfied. But not the functioning of the state is the reason which generates finances. Finances are objectively necessary not because there is a state. They arise because of the need for societal development and the cost of money for this development. Of course, the state actively influences the development of financial relations through its activities. However, it does not create and does not cancel these relations, arising and dying out when there are objective prerequisites for this. Thus, social conditions, objective economic processes serve as a basis for the existence of finances, and the state acts as an active participant of financial relations and their regulator.
A number of economists exaggerate the role of the state in the emergence and maintenance of financial relations.
The financial system in the broad sense is a set of financial relations existing within a given economic formation, in the narrow sense is a system of financial institutions, the socio-economic content, functions and structure of which are determined by state policy, including financial organizations and all structural units of the State Tax Service.
As finances are the bearer of distributive relations, this distribution occurs primarily between different subjects. Therefore, in the general totality of finances, which form the financial system, three large spheres (not including households) are distinguished:
- The finances of enterprises, institutions, organizations, as they serve the main link of social reproduction. On the one hand, they have features that characterize the economic nature of finance as a whole, and on the other hand – the features caused by the functioning of finance in different spheres of social production. Enterprise finance is a monetary relationship associated with the formation and distribution of monetary income and savings of economic entities and their use to fulfill obligations to the financial and banking system and financing costs of expanded reproduction, social services and material incentives for workers;
- Insurance, a significant part of the financial system associated with the redistribution of funds coming from legal entities and individuals. Such activity is associated with the probability of occurrence of sudden, unforeseen and insurmountable events, entailing damage, which is subsequently “spread out” among the participants of insurance;
- public finance, which are monetary relations concerning the distribution and redistribution of the value of social product and part of national wealth associated with the formation of financial resources of the state and its enterprises and the use of public funds for the costs of expanding production, satisfying the growing socio-cultural needs of members of society, the needs of national defense and governance.
Each of these spheres consists of smaller units. For example, in the first sphere there are finances of enterprises functioning on a commercial basis.
