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LESSON 7
TOPIC 8 C
SLO: Introduction to Financial sector and its
problems
Page no. 198-200(old version)
What is the financial sector?
• The financial services sector provides financial
services to people and corporations.
• Financial services make up one of the economy's most
important and influential sectors.
• Financial services is a broad range of more specific
activities such as banking, investing, and insurance.
• Financial services are limited to the activity of
financial services firms and their professionals while
financial products are the actual goods, accounts, or
investments they provide.
• The financial sector plays an
Role of important role in the functioning of
financial the economy through
intermediation. Simply put,
sector the financial sector sits between
savers and borrowers: it takes
funds from savers (for example,
through deposits) and lends them
to those who wish to borrow, be
they households, businesses or
governments
Banking Services
• Retail Banks
• They are aimed primarily at consumers. Typically, consumers will use their
local branch for everyday banking and other financial services.
• Private Banks
• Like many other banks, private banks offer a suite of financial products
and services, but to a much more specific audience. Private banks are
traditionally owned by one wealthy individual or a small group of wealthy
individuals who provide financial advisement to high earners.
Types of Banks
• Commercial Banks
• Commercial banks serve primarily individuals and small businesses.
Typically, they will offer similar services as a retail bank
• Investment Banks
• Investment banks serve as intermediaries and advisers for large
corporations, governments, and other financial institutions. Investment
banks serve these large organizations by helping them manage complex
financial tasks.
Insurance and Stock exchange
Insurance companies are a special type of financial institution that deals in the business
of managing risk. A corporation periodically gives them money and, in return, they
promise to pay for the losses the corporation incurs if some unfortunate event occurs,
causing damage to the well-being of the organization.
A stock exchange standardizes investments, allowing people to buy or sell discrete and
equal shares of ownership in various companies. It facilitates the transfer of funds
between investors and businesses, regulating as necessary to provide maximum safety for
everyone's investments
Making financial sector more efficient:
• It is important to keep the financial sector running smoothly as a break
down can lead to a recession. When the financial system starts to break
down, the economy starts to suffer. Capital begins to dry up as lenders
tighten the reins on lending. Unemployment rises, and wages may even
drop, leading consumers to stop spending.
• How to ensure efficiency?
❑Good regulatory system
❑Ensuring customers paying on time.
❑Good courts and procedures to ensure repayment.
❑Law implementation
Role of Central Banks
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