The term financial services describes a wide variety of products and activities in the financial industry. Not limited to the provision of loan and deposit taking services, these activities are also present in other industries such as trusts, estates, and agency services. These organizations also distribute a wide range of financial products and are constantly striving to expand their business to cater to the growing needs of people around the world. In fact, financial services are a major source of both savings and finance, and they depend on trust to thrive.
Financial services are a source of finance and a source of savings
In the world, financial services are the processes that people use to acquire financial goods and services. For example, the payment system provider accepts funds from payers and transfers them to recipients via debit cards, credit cards, and electronic funds transfers. Financial services are an important segment of the economy as it allows free flow of capital in the marketplace. It includes everything from real estate brokers to accounting services. Let’s take a closer look at these two different kinds of services.
Depending on the financial service that a person needs, they can vary greatly in price. Simple transactions can be paid on a flat rate or fixed-rate basis, and complicated transactions can be paid on a commission or profit-sharing basis. Depending on the circumstances, these payments may be less expensive than paying a professional to perform these tasks. But the benefits of using financial services are numerous.
They channel cash from savers to borrowers
Financial services channel cash from savers to potential borrowers. This system helps the economy work by channeling funds from savers to borrowers. Banks and other financial institutions facilitate the channeling of funds by offering mortgages and other loans. The process of disintermediation, however, can remove the intermediary altogether. In such cases, a creditor will provide a line of credit to a qualified client. These funds are then used to finance various financial instruments, including mortgages, auto loans, credit cards, and education.
A savings bank is a financial service that collects savings from savers and channels these funds to borrowers. A savings bank does not hold the money directly, but pays interest and dividends to its members. Savings banks are also called deposit-taking institutions, since they do not hold their own capital stock and rely on government guarantees to maintain their liquidity. Municipalities and postal systems also serve as savings banks. Many European savings institutions have government guarantees and pay interest on the money they collect from savers.
They facilitate domestic and foreign trade
The role of financial services in the international trade process is critical in facilitating both trade flows. Generally, financial services enable countries to trade goods and services between themselves. Common items of international trade include consumer goods, raw materials, and food. But the transactions can also involve services and other items. In order to facilitate these trade transactions, international financial payments are necessary. This article critically evaluates the traits and patterns of trade in financial services in special economic zones and discusses the relevance of the General Agreement on Trade in Services.
The presence of foreign banks has a beneficial effect on trade between countries, particularly in sectors that are highly dependent on external finance and lack tangible assets. These effects are in addition to the general financial sector development that brings additional financing to economically vulnerable firms. Furthermore, associated technologies and know-how make it easier for firms to access international markets and boost exports. Hence, foreign banks facilitate trade through a financial channel. However, their benefits are not always positive for the country’s economy.
They depend on trust
In the present, financial services rely on trust. The extent of trust depends on the level of knowledge and belief that people have about the service that they are using. The degree of trust a banker has depends on his interest and common practices within the organization. He will behave in a certain way if he is compensated for his efforts by the financial market. Trust in financial services is also influenced by the level of trust that individuals have in the people who work in the institutions. The financial crisis illustrated the multiple levels of trust. People had mistrust in bankers – both for their greed and for acting in their clients’ interests.
The lack of trust in financial services has important economic consequences. It can cause economic recession. A lack of confidence can compromise payments and currencies. Hyperinflation is also possible when trust is low. According to research conducted by Zak and Knack, low levels of trust significantly reduce stock investments. However, the contribution of trust to stock holding varies depending on the type of household. The economic impact of low trust on stock investments varies.