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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.

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.

Public finance has the following four functions:

a)the provision of essential services;

b)the encouragement or control of particular sectors of the economy;

c) the implementation of social policy in respect of social services;

d)the encouragement of the growth of the economy as a whole.

The major instrument of any financial system is the budget. In a market-oriented economy, the budget is the most important tool for achieving national priority and goals through the allocation and distribution of resources, and the maintenance of stable macroeconomic environment.

The budget is an estimate of national revenue and expenditure for the ensuing fiscal year. When expenditure exceeds the revenue the budget has a deficit .In Ukraine, public finance is a sum of the budgets of all levels of subjects of the state, extrabudgetary and reserve funds.



Any business – whether large or small, profit-seeking or not-for-profit – has important financial concerns:

How to get the funds needed to run the business on favourable terms and how to make sure that the funds are used effectively?

In this connection modern businesses have financial managers to look after these problems, whose major objective is to maximize the value of the firm for its owners, i.e. to maximize the shareholders’ wealth, which is represented by the market price of a firm’s common stock.

Managers daily face like the following:

w What assets to acquire?

w Will a particular investment be profitable?

w Where will the funds come from to finance the investment?

w How much to maintain as equity capital?

w How much inventory should be held?

Financial managers are primarily concerned with the management of fixed assets, working capital management and current liabilities, cash management, receivables management and inventory management; they are responsible for designing capital structure, choosing long- and short-term financing techniques.

The financial manager has to take these decisions with reference to the objectives of the firm.




Taxes are the compulsory financial contribution by a person or body of persons towards the expenditure of a public authority. In modern economies taxes are the most important source of government revenues. Taxes on income (i.e. on wages, salaries, profits, dividends, rent and interest) and on capital are known as “direct” taxes. Taxes on commodities or services are known as “indirect’ taxes.

Taxes are considered to have three functions:

a) fiscal or budgetary, to cover government expenditure, to provide the public authorities with the revenue required for meeting the cost of defence, social services, interest payments on national debt, municipal services, etc;

b) economic, to give effect to economic policy, to promote stable economic growth, to influence the rate of economic growth of the nation;

c) social, to increase the economic welfare of the community, to lessen inequalities in the distribution of income and wealth.

Businesses and individuals are subjects to many forms of taxes. The various forms of business organization are not taxed equally. The tax situation is simplest for proprietorships and most partnerships; corporations or companies are treated differently.



Ŕll Ukrainian legal entities, whether they have foreign investment or not, are subject to the profit tax law. Foreign entities that have a taxable permanent establishment in Ukraine are also taxed under this law.

Ukrainian taxes provide revenue for two tiers of the budget: national and local. The major taxes paid to the budget are: tax on income, tax on wages, profit tax, excise duty, state duty, value added tax (VAT) and others.

In Ukrainian government tries to create the climate in which business can thrive, to keep the tax burden as low as possible. It also attempts to eliminate tax allowances, which deprive the budget of tax revenues, and to improve tax collection.

Tax returns in Ukrainian legal entities are audited by the tax authorities at the time they are submitted.

If the company or a person assessed believes the assessment is incorrect in any way, an appeal may be lodged against it. The appropriate financial organ is required by law to reply to such an appeal within five days.

When a company resident in one country receives income or gains from source in another, or when shareholders and company are domiciled in different countries it is possible that incomes arising will be taxable in each country, i.e. taxed twice.

A number of countries have problems because of significant taxpayer non-compliance.

Along with cases of illegal evasion of tax obligations there are entirely legal ways of avoidance by which a person may so arrange his affairs as to minimize, or even eliminate, tax liability on his property and income.



All societies have something else in common. They have an economic system or an organized way of providing for the wants and needs of their people. The way in which these decisions are made will determine the type of economic system they have. There are three major kinds of economic systems: traditional, command and market.

In a society with a traditional economy nearly all economic activity is the result of ritual and custom.

The main advantage of the traditional economy is that everyone has a role in it. This helps keep economic life stable and community life continuous. The main disadvantage of the traditional economy is that it tends to discourage3new ideas and even punishes people for breaking rules or doing things differently. So ittends to be stagnant4or fails to grow over time5.

Other societies have a command economy — one where a central authority makes most of the What, How and for Whom decisions.

The major advantage of a command system is that it can change direction drastically in a relatively short time. The major disadvantage of the command system is that it does not always meet the wants and needs of individuals.

The second disadvantage of the command economy is the lack of incentives3that encourage people to work hard. In most command economies today workers with different degrees of responsibility receive similar wages

The command economy requires a large decision-making bureaucracy. Many clerks, planners, and others are needed to operate the system. As a result, most decisions cannot be made until a number of people are consulted, or a large amount of paperwork is processed. This causes production costs6to increase and decision-making to slow down. Thus, a command system does not have the flexibility to deal with day-to-day problems.

In a market economy, the questions of What, How and for Whom to produce are made by individuals and firms acting in their own best interests. In economic term a market is an arrangement that allows buyers and sellers to come together to conduct transactions1.

A market economy has several major advantages that traditional and command economies do not have. First, a market economy is flexible and can adjust to change over time.

The second major advantage of the market economy is the freedom that exists for everyone involved. Producers are free to make whatever they think will sell. They are also free to produce their products in the most efficient manner. Consumers on the other hand are free to spend their money or buy whatever goods and services they wish to have.

The third advantage of the market economy is the lack of significant government intervention. Except for national defence, the government tries to stay out of the way5. As long as there is competition among producers, the market economy generally takes care of itself.

The final advantage of the market economy is the incredible variety6of goods and services available to consumers. In fact, almost any product can and will be produced so long as there is a buyer for it.


6. Taxation In the United Kingdom

Taxes are the compulsory financial contribution by a person or body of persons towards the expenditure of a public authority. In modern economies taxes are the most important source of government revenues. Taxes on income (i.e. on wages, salaries, profits, dividends, rent and interest) and on capital are known as “direct” taxes. Taxes on commodities or services are known as “indirect’ taxes.

In the United Kingdom there is no single code of tax law, the body of tax legislation is being increased by each year’s Finance Act1.

The United Kingdom operates a “schedular” system2, where’by taxable income from different sources is calculated and taxed under the rules of a particular “schedule”.

Tax assessments are normally based on returns by the Board of Inland Revenue (referred to simply as “Inland Revenue”) for completion by the taxpayer. While companies may receive tax return, they normally submit instead a copy of their annual accounts together with a computation of taxable profits.

The United Kingdom does not yet operate a system of self-assessments for tax on income and capital gains, but it is being introduces at the moment.


7. Taxation In the USA

Taxes are the compulsory financial contribution by a person or body of persons towards the expenditure of a public authority. In modern economies taxes are the most important source of government revenues. Taxes on income (i.e. on wages, salaries, profits, dividends, rent and interest) and on capital are known as “direct” taxes. Taxes on commodities or services are known as “indirect’ taxes.

In the United States of America nearly all of the federal government’s revenues come from taxes. By far the most important source of tax revenue is the personal income tax. Gross receipts from corporate income taxes yield a far smaller percentage of total federal receipts. Individual states levy their own taxes. As a result, for example, the profits of a corporation are liable to federal and sometimes state corporate income taxes. This often imposes a double tax burden. When the after-tax income is paid out to stock-holders as dividends, it is then taxed again as personal income.




8.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 by interventing in foreign exchange markets.

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:

< refinancing of commercial banks;

< interest rates;

< open market operations;

< foreign currency control;

< direct quantity restrictions.

The Fed performs three major functions. It provides services to the banking system and federal government; it stabilizes the banking system; and it controls the quantity of money in circulation.

Date: 2015-12-17; view: 1851

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