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Money is the root of all progress For thousands of years, metals such as gold, silver and bronze served as money because they were available, affordable, durable, fungible (substitutable), portable and reliable But shortages of precious metals created problems for the economy leading to development of paper money and electronic money Money is essentially a matter of belief, faith and trust Money is a matter of functions four; a medium, a measure, a standard, a store
Intermediation
Individuals with money to save need to find those who need to borrow, and vice versa. Financial services do the job lending and collecting payment more easily, cost effectively and expertly
Risk management
Without financial services people will focus on saving to cover risk that they might not buy many goods and services
A financial product is a facility (arrangement or intangible property) through which, or through the acquisition of which, a person
makes a financial investment
the investor gives money to another person and the person uses the contribution to generate a financial return, or other benefit, for the investor the investor has no day-to-day control over the use of the contribution to generate the return or benefit Eg: a person paying money to a company for the issue of shares (the company uses the money to generate dividends for the person and the person, as a shareholder, does not have control over the day-to-day affairs of the company) manage, avoid or limit the financial consequences to them of particular circumstances happening Eg. taking out insurance and hedging a liability by acquiring a futures contract or entering into a currency swap by ways other than making physical delivery of a domestic or foreign currency in the form of notes / coins Eg: facility for direct debit of a deposit account, a facility for the use of cheques
Financial services are economic services provided by the finance industry which comprises of
Deposit-taking Firms
Commercial banks Credit unions Finance companies Property and casualty insurance companies Pension funds Investment companies Mutual Funds
Banking & Credit Current account Retail deposits Travelers cheques Consumer finance Credit cards House mortgages Loan guarantees Exposure credit Leasing Venture capital Business loans International lending Foreign currency deposits
Insurance
Personal
Life Non-life
Corporate
Corporate finance Securities market Fund management Corporate advisory services, etc.
Intangible; cannot be visually communicated in advertisements Inseparability; of prodn and distn direct sale Lack of special identity; as products are similar, emphasis is on package (branch, location, staff, promotion) rather than product Heterogeneous; dependent on human factor, technology, same person/ATM may render service differently each time Labour intensive Fluctuation in demand as per economic activity Information based; relatively unexciting nature makes attracting consumer attention and inspiring consumer desire difficult.
Changing customer behaviour; longer life spans, increasing urbanization, increased home ownership, higher proportion of women in workforce, better living standards, etc. Deregulation and government intervention; to protect interests of consumers and to facilitate more competitive and efficient industry Intense competition Technological innovation; new products, new payment systems, new forms of distribution and delivery, enhanced MIS Client relationship and quality; aim is to establish long term, multiple service relationship
Department of Financial Services, Ministry of Finance, GOI Visit http://financialservices.gov.in/ What do they do? What is financial inclusion? What are some of the new initiatives being taken?