The article gives a brief description of financial entrepreneurship, its essence, the main types and forms. The specifics of entrepreneurial activity in the field of finance is considered, in addition, it is characterized by the main financial markets. The article also describes financial instruments and gives an opinion on the importance of this type of entrepreneurship in the modern economy.
The essence of entrepreneurial activity in the financial field
The general principle of entrepreneurship is that goods and services in this context have a broader meaning than, for example, only in industrial or commercial activities. So, objects of entrepreneurial transactions can be not only tangible goods, but also intellectual property, work, information, as well as currency, securities and the like.
In a general sense, financial entrepreneurship, the concept of which may vary slightly from one source to another, results in the fact that the subject of trade (exchange) of a business entity is just financial values (securities, national and foreign currency). The essence of such operations is that the entrepreneur receives his profit from the resale (speculation) of these values. It should be noted at the same time that speculation in this case is an ordinary operation in the financial market and does not have any criminal component, as was previously thought in the Soviet Union.
The main types of entrepreneurship
There are various classifiers of entrepreneurial activity. However, the following types of entrepreneurship are most often distinguished:
- Entrepreneurship in the manufacturing sector.
- Advisory activity.
- Entrepreneurship in the commercial sphere.
- Entrepreneurship in the field of finance.
It should be noted that since these types are somehow connected with the phases of reproduction, then, despite the individual specifics, all types of entrepreneurial activity are closely interrelated and mutually complementary.
Entrepreneurship in the financial field as a form of commercial entrepreneurship
Commercial activity has appeared since ancient times and always implied the process of buying and selling any assets. The emergence of financial entrepreneurship arose a little later than commercial and was associated with the appearance of the first loan operations. As is known from history, the Templars were the first to engage in such activities on a large scale.
Since financial activities in the financial sphere are a form of commercial entrepreneurship, the general technique of financial transactions is no different from ordinary commodity transactions. It should be noted that financial assets as goods nevertheless have their own characteristics, and this is primarily due to the emergence of electronic resources in the financial sector. Transactions with financial assets at the moment can occur with astonishing speed and at the same time have minimal associated additional costs for their implementation. In addition, it is financial activity that is often the feeding generator of all commerce, which stimulates its development through financial and credit mechanisms.
The specifics of entrepreneurial activity in the financial field
For completeness, it is necessary to highlight the main features of financial entrepreneurship. In addition to the main feature of this type of entrepreneurship, which is expressed by the specificity of the object of sale (financial values), there are a number of other nuances.
The organization of financial entrepreneurship often requires the formation of systems of specialized organizations and institutions, namely, financial and credit institutions, stock and currency exchanges, etc.
The implementation of entrepreneurial activity in the financial field to the greatest extent requires the availability of complete, reliable, relevant information, and the availability of the most up-to-date technical and software computing equipment.
A financial entrepreneur predominantly (if he is not an issuer) independently pays all expenses for the initial purchase of financial assets with the calculation of their profitable sale. Consequently, fully takes all the financial risks upon itself.
In many cases, the period from the acquisition by an entrepreneur of financial values to the benefits of their sale can be extended in the medium and long term. Therefore, such transactions usually require a clear definition of guarantees in one form or another (a third party as a guarantor, pledge, etc.).
Effective financial entrepreneurship requires the involvement of the most qualified personnel in the fields of finance, economics, law, information technology.
When conducting entrepreneurial activities in the field of finance, it is often necessary to resort to third-party services and intermediaries (audit firms, law firms, stock intermediaries, etc.).
Types of entrepreneurial activities in the financial field
We can distinguish the main types of financial entrepreneurship. These include the activities of business entities in the following markets:
- securities market - their issue and resale (stocks, bonds, etc.);
- banking services market - financial credit business;
- financial services market - intermediary entrepreneurial activity with financial assets;
- insurance market - insurance operations with financial assets.
You can also highlight the most modern forms of financial entrepreneurship.
Leasing - intermediary entrepreneurial activity of sale in the stock, credit and financial markets. It is carried out by the entrepreneur at his own expense in favor of the end customer with the subsequent full payment by the buyer of the leased object and payment of a commission.
Factoring - the buyback by an entrepreneur of current debt obligations (supplier accounts, etc.) at a discount value, followed by receipt of the full value of the debt obligations from the debtor.
Forfeiting is a discounted purchase by an entrepreneur at his own expense of medium- and long-term debt obligations for the purchase of expensive assets with the subsequent payment to the entrepreneur of the full value of these assets by the final buyer.
The main types of financial entrepreneurship require a separate, more detailed description.
Brief characteristics of entrepreneurship in the securities market
The securities market is one of the most developing financial institutions. Financial entrepreneurship includes such types of activities in the securities market as:
- Brokerage. A broker is a professional intermediary that carries out entrepreneurial activities in the securities market on the basis of a contract and a power of attorney for transactions with securities for a commission.
- Dealer. A dealer, unlike a broker, buys and sells securities on his own on the basis of self-financing with the announcement on his own behalf of prices for individual financial instruments.
- Securities can be managed by an individual or legal entity on the basis of an urgent trust agreement with the owner of these securities or with the owner of the financial resources for making investments.
- Clearing. This type of activity involves the determination of obligations in the process of offsetting operations with securities, as well as monitoring compliance with the established agreements on such transactions.
- Depository. The depository provides storage services for certificates for financial instruments and services to change the ownership of securities.
Also on the securities market, entrepreneurial activities are carried out to maintain a register of owners of financial securities and to organize trading in this market.
Brief characteristics of entrepreneurship in the banking and credit sector
Entrepreneurship in the financial sector is also directly related to credit operations in the banking services market. A credit institution may be an enterprise of any form of ownership that has received a license from the Central Bank for financial and credit (banking) activities. The object of entrepreneurial activity in this case is primarily operations with national and foreign currencies. The main subjects of this type of entrepreneurship are commercial banks and non-bank credit organizations (clearing companies, clearing houses, credit unions, pawnshops, etc.), which are forbidden to engage in other types of entrepreneurship (production, trade, and the provision of other services).
The list of possible operations in this area is very wide. Among them are the following:
- attraction and placement of deposit financial funds;
- maintaining and making settlements on customers' bank accounts;
- foreign currency purchase and sale operations;
- issuance of financial funds on credit for various periods on certain conditions for repayment and payment of loans;
- money transfer operations;
- operations with financial leasing;
- factoring operations and the like transactions to acquire third-party obligations.
Also, credit organizations can be active participants in the securities market and other financial markets.
Entrepreneurship in the market of insurance and other financial services
The characteristic of financial entrepreneurship in the insurance sector is distinguished by the fact that in this case, the objects of entrepreneurial activity are a variety of risks. That is, the subjects of insurance business provide guarantees of compensation for possible damage upon the occurrence of a risk event, thus taking the risks of the client upon themselves for the fee specified in the insurance contract. Typically, insurance premiums are broken down into premiums distributed over time.
The main types of insurance include property insurance, life and health insurance, individual pension insurance, insurance of financial and commercial risks. The latter type includes:
- credit insurance, that is, the transfer of credit default risk;
- insurance of loss of profit due to unforeseen external factors (technical, industrial, natural, commercial, etc.);
- insurance of entrepreneurial risks in connection with loss of income and loss of resources, including in the financial sphere of entrepreneurship and others.
There are also forms of financial entrepreneurial activity that are not related to the purchase and sale of securities, financial and credit transactions and insurance. Examples of financial entrepreneurship of this nature are auxiliary services in the field of financial intermediation, consulting, auditing services, etc.
Key financial instruments
Various financial instruments circulating in the financial market are the main objects of transactions in this sphere of entrepreneurship. The main financial instruments usually include:
- settlement documents and banknotes, which are mainly circulated in the financial and credit sector;
- foreign banknotes, documents of currency settlements and certain securities are mainly instruments of the foreign exchange market;
- instruments of the insurance market are a variety of products of the insurance business sector;
- instruments of the precious metals market (gold, platinum, silver with relevant documentation);
- Primarily secondary financial instruments are traded on the securities market.
We can distinguish such main instruments of the securities market as:
- shares - equity security, confirming the right of its owner to a part of the business and the right to receive dividends;
- bond - a fixed-term debt security confirming the right of its owner to receive the nominal value of this document from the issuer;
- bill of exchange - an urgent monetary obligation in writing giving its holder the right to receive the amount indicated in the document from the debtor (drawer);
- swaps, options, forwards, futures - contracts for the sale (exchange) of any assets according to the rules established by these contracts.
The value of entrepreneurial activity in the financial sector in the modern economy
In a modern market economy, the financial market as a whole and the entrepreneurial activity of its subjects in particular are of great importance. This type of entrepreneurship contributes to the formation and movement of cash flows at different levels of the economy. This is the driving mechanism of all commercial activities, and the accumulation, efficient distribution of temporarily free cash, and the formation of an investment climate, and the management of multiple risks.
In recent decades, the development of financial entrepreneurship has been particularly intense. This is due, on the one hand, to the intensive development of new information technologies, including in the financial sector, and, on the other hand, to the strengthening of globalization processes in the global economy. However, it should be noted that this type of business is associated with an increased degree of risk. In particular, in recent years, a number of financial crises have characterized a high degree of instability in markets around the world, and economic globalization in this context has only increased risk trends.
Based on this, it should be concluded that at the moment there are few standard professional skills and elementary luck for effective activity in the financial environment. Now we need balanced approaches to financial transactions, backed by the most advanced methods in financial risk management.