Financial entrepreneurship: definition, features, examples

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The article gives a brief description of financial entrepreneurship, its essence, main types and forms. The specifics of entrepreneurial activity in the field of finance are considered, in addition, it is characterized in the context of the main financial markets. The article also describes financial instruments and gives a conclusion about the importance of this type of entrepreneurship in the modern economy.

Essence of entrepreneurial activity in the financial field

The general principle of entrepreneurship is that goods and services in this context have a wider meaning than, for example, only in production or trade activities. So, the objects of entrepreneurial transactions can be not only physical goods, but also intellectual property, works, information, as well as currency, securities and similar values.

In a general sense, financial entrepreneurship, the concept of which in differentsources may vary somewhat, as a result, it comes down to the fact that the subject of trade (exchange) of a business entity is just financial values (securities, national and foreign currencies). The essence of such operations is that the entrepreneur receives his benefit from the resale (speculation) of these values. At the same time, it should be noted that speculation in this case is a common operation in the financial market and does not have any criminal component, as was previously thought in the Soviet Union.

Main types of business

There are various classifiers of entrepreneurial activity. However, the following types of entrepreneurship are most often distinguished:

• Entrepreneurship in the manufacturing sector.
• Advisory activities.
• Business Entrepreneurship.
• Entrepreneurship in finance.

It should be noted that since these types are somehow connected with the phases of reproduction, then, despite individual specifics, all types of entrepreneurial activity are closely interconnected and mutually complementary.

Entrepreneurial activity in the financial field as a form of commercial entrepreneurship

Commercial activities have appeared since ancient times and have always implied the process of buying and selling any assets. The origin of financial entrepreneurship arose a little later than commercial and was associated with the appearance of the first lending operations. As is known from history, the Templars were the first to engage in such activities on a significant scale.

Since financial activity in the financial sector is a form of commercial enterprise, the general technique of financial transactions does not differ from ordinary commodity transactions. At the same time, it should be noted that financial assets as a commodity still have their own characteristics, and this is primarily due to the emergence of electronic resources in the financial sector. Transactions in financial assets can now occur at an astonishing rate and yet have minimal associated incremental costs. In addition, it is financial activity that is often the fueling generator of all commerce, which stimulates its development through financial and credit mechanisms.

Specifics of entrepreneurial activity in the financial field

For the sake of 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 and purchase (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.

Carrying out business activities in the financial field to the greatest extent requires a complete, reliablerelevant information, provision with the most modern technical and software computing device.

Financial entrepreneur mainly (if he is not an issuer) independently pays all expenses for the initial purchase of financial assets with the expectation of their profitable sale. Therefore, it fully takes on all financial risks.

In many cases, the period from the acquisition of financial assets by an entrepreneur to the receipt of benefits from 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 (third party as guarantor, collateral, etc.).

Effective financial entrepreneurship requires the involvement of the most qualified personnel in the field of finance, economics, law, information technology.

Finance businesses often require the use of third-party services and intermediaries (audit firms, law firms, exchange brokers, etc.).

Financial business activities

It is possible to identify the main varieties of financial entrepreneurship. These include the activities of business entities in the following markets:

• securities market - their issue and resale (shares, bonds, etc.);
• banking services market - financial and credit business activities;
• financial services market - intermediary entrepreneurial activity withfinancial assets;
• insurance market - insurance operations with financial assets.

You can also highlight the most modern forms of financial entrepreneurship.

Leasing is an intermediary entrepreneurial activity of buying and selling on the stock, credit and financial markets. It is carried out by the entrepreneur at his own expense in favor of the end buyer, with the subsequent full payment by the buyer of the leasing object and the payment of a commission.

Factoring - redemption by an entrepreneur of current debt obligations (supplier's invoices, etc.) at a discount cost, followed by receipt of the entire cost of debt obligations from the debtor.

Forfaiting is a discount purchase by an entrepreneur for his own funds of medium- and long-term debt obligations for the purchase of expensive assets, followed by payment to the entrepreneur of the full cost of these assets by the end buyer.

The main types of financial entrepreneurship require a separate, more detailed description.

Brief description of entrepreneurship in the securities market

The securities market is one of the most developing financial institutions. Financial entrepreneurship includes such activities in the securities market as:

• Brokerage. A broker is a professional intermediary who carries out business activities in the securities market on the basis of an agreement and a power of attorney for transactions with securities forcommission.
• Dealership. A dealer, unlike a broker, buys and sells securities independently on a self-financing basis with an 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 fiduciary agreement with the owner of these securities or with the owner of funds for investment.
• Clearing. This type of activity involves the determination of obligations in the process of offsetting transactions with securities, as well as monitoring compliance with established agreements on such transactions.
• Depository. The depository provides custody services for certificates for financial instruments and services for changing the ownership of securities.

Also, entrepreneurial activities are carried out on the securities market to maintain a register of owners of financial securities and organize trading on this market.

Brief description 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 organization may be an enterprise of any form of ownership that has received a license from the Central Bank to carry out financial and credit (banking) activities. The object of entrepreneurial activity in this case is primarily operations with national and foreigncurrency. The main subjects of this type of business are commercial banks and non-bank credit organizations (clearing companies, clearing houses, credit unions, pawnshops, etc.), which are prohibited from engaging in other types of business (production, trade, 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 funds;
• maintaining and making payments on customer bank accounts;
• foreign currency purchase and sale operations;
• issuance of financial resources on credit for various periods on certain terms of repayment and payment of loans;
• money transfer operations;
• operations with financial leasing;
• factoring operations and similar operations for the acquisition of obligations of third parties.

Also, credit institutions can be active participants in the securities market and other financial markets.

Entrepreneurial activity in the market of insurance and other financial services

The characteristic of financial entrepreneurship in the field of insurance is distinguished by the fact that in this case, the objects of entrepreneurial activity are a variety of risks. That is, insurance business entities provide guarantees for compensation for possible damage in the event of a particular risk event, thus taking the client's risks for themselves.fee set in the insurance contract. Typically, the insurance fee is broken down into insurance premiums spread over time.

The main types of insurance include property insurance, life and he alth insurance, individual pension, insurance of financial and commercial risks. The latter type includes:

• credit insurance, that is, the transfer of the risk of loan default;
• insurance for loss of profit due to unforeseen external factors (technical, man-made, natural, commercial, etc.);
• insurance of business risks due to shortfall in income and loss of resources, including in the financial sector of entrepreneurship, etc.

There are also forms of financial business activities that are not related to the purchase and sale of securities, financial and credit operations and insurance. Examples of financial entrepreneurship of this nature are ancillary services in the field of financial intermediation, consulting, auditing services, etc.

Main financial instruments

Various financial instruments circulating on the financial market are the main objects of transactions in this business area. The main financial instruments usually include:

• settlement documents and banknotes, which are mainly circulated in the financial and credit sector;
• foreign banknotes, currency settlement documents and certain valuablesecurities are predominantly currency market instruments;
• insurance market instruments are a variety of insurance business products;
• metal market tools (gold, platinum, silver with relevant documentation);
• on the securities market mainly secondary financial instruments circulate.

One can single out such main instruments of the securities market as:

• shares - equity security, confirming the right of its owner to part of the business and the right to receive dividends;
• bond is a debt term security, confirming the right of its owner to receive the par value of this document from the issuer;
• promissory note - an urgent monetary obligation in writing, giving its owner the right to receive the amount specified in the document from the debtor (drawer);
• swap, options, forwards, futures - contracts for the sale (exchange) of any assets according to the rules established by these contracts.

The importance of entrepreneurial activity in the financial sector in the modern economy

In a modern market economy, the financial market in general 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, effective distribution of temporarily free cash, and the formation of an investmentclimate, and managing 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 world economy. However, it should be noted that this type of business is associated with a high degree of risk. More recently, a series of financial crises have marked a high degree of volatility in markets around the world, and economic globalization in this context has only exacerbated risk trends.

Based on this, it should be concluded that at the moment there are not enough standard professional skills and elementary luck for effective activity in the financial environment. What is needed now is balanced approaches to financial operations, supported by the most progressive methods in financial risk management.