FINANCIAL SYSTEM. PUBLIC FINANCE

Finance is a system of monetary relations leading to formation, distribution and use of money in the process of its turnover between economic entities.

The financial system is the network of institutions through which firms, households and units of government get the funds they need and put surplus funds to work.

Savers and borrowers are connected by financial intermediaries including banks, thrift institutions, insurance companies, pension funds, mutual funds, and finance companies. Finance in an economic system comprises two parts: public finance and finance of economic entities.

Public finance is the provision of money to be spent by national and local government authorities on¹ projects of national and local benefit. The major instrument of any financial system is the budget. Budget is an estimate of national revenue and expenditure for the ensuing fiscal year. In a market economy, the budget is the most important tool for achieving national priority and goals. Revenue and expenditure forecasting is the most fundamental step in the process of budget preparation.

Мanagement of the state budget

A government budget is a document plan of public revenue and expenditure that is often passed by the legislature, approved by the chief executive-or president and presented by the Finance Minister to the nation. The budget is also known as the Annual Financial Statement of the country. This document estimates the anticipated government revenues and government expenditures for the ensuing (current) financial year. For example, only certain types of revenue may be imposed and collected. Property tax is frequently the basis for municipal and county revenues, while sales tax and/or income tax are the basis for state revenues, and income tax and corporate tax are the basis for national revenues.

Government Budgets are of three types:

Balanced budget: when the government revenue as expenditure are equal.

Surplus Budget: when anticipated revenues exceed expenditure.

Deficit Budget: when anticipated expenditure is greater than revenues.

The two basic elements of any budget are the revenues and expenses. In the case of the government, revenues are derived primarily from taxes. Government expenses include spending on current goods and services, which economists call government consumption; government investment expenditures such as infrastructure investment or research expenditure; and transfer payments like unemployment or retirement benefits.

Budgets have an economic, political and technical basis. Unlike a pure economic budget, they are not entirely designed to allocate scarce resources for the best economic use. They also have a political basis wherein different interests push and pull in an attempt to obtain benefits and avoid burdens. The technical element is the forecast of the likely levels of revenues and expenses.

18. MONETARY POLICY. CENTRAL BANKING.

The central banking system is a major sector of any modern monetary system. It is of great importance to the fiscal policy of the national government and the functioning of the private sector.

Central banks such as the Bank of England, the Federal Reserve Board of the US, the Bundesbank of Germany, the National Bank of Ukraine function for the government and other banks, not for private customers. They are responsible for the implementation of monetary policy and supervision over the banking system.

In particular, they control the money supply, fix the minimum interest rate, act as lenders of last resort to commercial banks with liquidity problems, issue coins and bank notes, influence exchange rates.

To ensure the safety of the banking system, central banks impose reserve requirements, obliging commercial banks to deposit a certain amount of money with the central bank at zero interest. Central banks in different countries also impose different “prudential ratios” on commercial banks such as capital ratio and liquid ratio.

In the course of market reforms in Ukraine the National Bank has been pursuing moderately tight monetary policy aimed at further reduction of inflation. The NBU has been using the following main instruments of monetary policy:

< fixed targets for the money supply growth;

< refinancing of commercial banks;

< interest rates;

< open market operations;

< commercial banks reserve requirements;

< foreign currency control;

< direct quantity restrictions.

Сommercial bank

A commercial bank is a type of bank that provides services, such as accepting deposits, giving business loans and basic investment products.

Commercial bank can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to individual members of the public (retail banking).

Commercial banks perform many functions. They satisfy the financial needs of the sectors such as agriculture, industry, trade, communication, so they play very significant role in a process of economic social needs. The functions performed by banks, since recently, are becoming customer-centred and are widening their functions. Generally, the functions of commercial banks are divided into two categories: primary functions and the secondary functions. The following chart simplifies the functions of commercial banks.

Commercial banks perform various primary functions, some of them are given below:

· Commercial banks accept various types of deposits from public especially from its clients, including saving account deposits, recurring account deposits, and fixed deposits. These deposits are payable after a certain time period

· Commercial banks provide loans and advances of various forms, including an overdraft facility, cash credit, bill discounting, etc. They also give demand and demand and term loans to all types of clients against proper security.

· Credit creation is most significant function of commercial banks. While sanctioning a loan to a customer, they do not provide cash to the borrower. Instead, they open a deposit account from which the borrower can withdraw. In other words, while sanctioning a loan, they automatically create deposits, known as a credit creation from commercial banks.

Global financial system

The global financial system (GFS) is a financial system consisting of institutions and regulations that act on the international level, as opposed to those that act on a national or regional level. The main players are the global institutions, such as International Monetary Fund and Bank for International Settlements, national agencies and government departments, e.g., central banks and finance ministries, and private institutions acting on the global scale, e.g., banks and hedge funds.

Фінансова система

Finance is the provision of money at the time when it is needed. It is a system of monetary relations leading to formation, distribution and use of money in the process of its turnover between economic entities.

The financial system is the network of institutions through which firms, households and units of government get the funds they need and put surplus funds to work.

Savers and borrowers are connected by financial intermediaries including banks, thrift institutions, insurance companies, pension funds, mutual funds, and finance companies.

Finance in an economic system comprises two parts: public finance and finance of economic entities.

Public finance is the provision of money (by the community through taxes) to be spent by national and local government authorities on¹ projects of national and local benefit. The major instrument of any financial system is the budget.

The budget is an estimate of national revenue and expenditure for the ensuing fiscal year.

Revenue and expenditure forecasting is the most fundamental step in the process of budget preparation.

Budget preparation at the national level involves a number of institutions. The Ministry of Finance (MoF) is the central coordinating institution in charge of compiling and presenting the budget. It has major inputs from² ministries in various sectors of the economy and the state tax bodies.