Meaning of Financial Services
Financial services refer to economic services provided by various financial institutions that deal with the management of money. It is an intangible product of financial market like loan, insurance, stocks, credit card etc. Financial services are products of institutions such as banking firms, insurance companies, investment funds, credit unions, brokerage firms and consumer finance companies.
It is a key component of financial system that facilitates financial transactions in an economy. Financial services are essential tool for economic growth as it brings together the one who needs funds and those who can supply funds.
It enables peoples in raising their standards of livings by providing them with a facility of purchasing various products on hire purchase. Financial services acts as a barrier against risk arising from various unforeseen activities through insuring people against losses. These services are consumer oriented as these are designed and provided in accordance to the needs of customers.
Objectives of Financial Services
Objectives of financial services are as follows:-
- Raises fund: Financial services serve as an efficient tool for raising funds in an economy. It provides various financial instruments to individuals, investors, corporation and institutions where they can invest their money thereby raising funds from them.
- Promotes savings: These services provide different types of convenient investment options which can grow people’s savings. Mutual fund is one such good option where people can invest and earn reasonable return without much risk.
- Deployment of funds: Financial services enable proper deployment of financial resources into productive means. There are numerous investment avenues and instruments available in financial market where people can invest their funds for earning income.
- Minimizes risk: Risk minimization is an important role played by financial services. These services help in diversifying the risk and protect people against damages by providing insurance policies.
- Economic growth: Financial services help government in attaining overall growth of economy. Government can easily raise both short-term and long term funds for its various needs. It helps in improving overall infrastructural facilities and employment opportunities in a country.
Functions of Financial Services
Functions of financial services are explained in points given below:-
- Enables payment system: Financial services have a key role in proper movement of funds among peoples. It enables peoples to successfully do their payments without any difficulty. Credit cards, debit cards, bill of exchange and cheque are such financial instruments which facilitates financial transactions.
- Proper utilization of funds: These intangible services help in efficient allocation of funds. Financial services serves as a mean through which peoples invest their ideal lying resources into better investment plans for generating incomes.
- Maintains liquidity: Financial services helps in maintaining sufficient funds in an economy. It links the one who are in need of funds and those who can supply funds as they have sufficient savings. Various services like loan and credit card enable people to acquire needed funds easily.
- Raises standard of living: These services play a crucial role in improving the living standards of people’s. Customers are easily able to purchase costly goods on hire purchase system availing these services. People are able to enjoy benefits of quality and luxury items.
- Promotes trade: Financial services promote both domestic and foreign trade in a country. Forfaiting and factoring companies in financial market promotes export of good to foreign market and also sales of products in domestic market. In addition to this insurance and banking facilities also support trade activities in country.
- Improve employment opportunities: Generation of employment opportunities is another important function of financial services. Different financial institutions employ large number of peoples for selling these services. They pay remunerations to their employees out of the profit earned by selling these financial services.
- Balanced regional development: Financial services helps in balanced regional development of the country. All the key sectors of economy such as primary sector, secondary sector and tertiary sector are able to acquire required funds through these services. This results in regional disparities and brings balanced development in a country.