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  • 03 Aug 2018

Role of Financial Sector in Economic Development

Financial Sector

In the system of a financial sector, funds flow from the upper quadrant to the lower quadrant. Usually, those who have a surplus amount of funds, invest their finances in the market for the better yield. The fund flows down to those who are in need of it and therefore, this is how they make their living. Now, this is the layman explanation of how the financial sector expands the economy of a nation. To go deep into the subject and to know how the financial sector really works, you need to understand the market.

Marketing is a fully functional and disciplined process of a business, designed to provide services and products to customers. It is based on the demand and supply of the service or a product, with regards to the integrated human values. Marketing is an important tactic required to boost the economy. With an increase in competition and change in technology nowadays, a company needs to come up with a new strategy to gain the upper hand. This process not only brings better products and services to customers but also enhances the overall productivity of the economy.

Role of Marketing in Economy:

The relationship between investment & savings: -

In the long run, an economy is entirely depended on marketing strategies for investment and savings. The investment enables the production in an economy to move outward in a curve. For an instance, if a company requires integrating new technology into their system or, they need a new machinery to be replaced with the old one. An investment in a particular department directly affects the growth of the economy. This investment could be made by the savings of an organization. Investment and savings are interdependent and complement each other. Investments made from savings deliver more savings. This, in turn, allows you to make a bigger investment for massive yields.

Financial systems’ role in the growth of capital market : -

The proficiency of a financial system largely depends on the affordable capital. The process of channelling investment projects by effective funding to bring more value to the economy is known as efficient allocation of capital. To promote growth in the capital market, institutions must take responsibility for the investment in the most productive projects. If done wisely, it ensures you highest return possible and an increased-growth in the capital market. This process takes care of the maturity of assets & liabilities and therefore, plays an important role to boost the per capita capacity of a market.

Government securities market : -

Government security is a bond authorized or issued by the central organization. The repayment is promised within a certain period of time when the bond becomes matured. Securities such as these are low-risk bonds and are backed by the taxing process of a government. The major investors in this market are central banks that are subscribed to these security bonds to meet their official requirements. In addition to this, insurance sectors, state government provident funds, corporate, financial institutions etc., also take part in the securities’ market.

Financial system’s influence on the infrastructure growth: -

An investment made by a financial institution typically enhances the livelihood of a society, by improving infrastructure to maintain the quality of the convenience in life. The world economy has recently entered into a slow phase, where growth in infrastructure seemed to slow down. A well managed financial system by a financial institution may influence the growth of infrastructure by bridging the gap between funding and technical issues. For an instance, China has consecutively been seen investing in infrastructure on a global scale. This initiative has brought a significant amount of growth in the economy.

Effect of the financial system in the development of the trading sector: -

The financial system helps to lift up the trade barriers in the financial market. As the barriers get lifted, it brings the surge of investment in new economic activities. In simple terms, it gives rise to an economy to transition from a lower state of growth to a huge-growth environment. It is important to know that, political surges and foreign influence, largely affects the trading sector. However, the intensity of these fundamental factors can be decreased through the adequate funding by financial institutions.

A financial system has the capacity to bring uniform interest rate in the economy of a country. Speaking of which; it can be done by balancing the channelling of funding between companies and the capital market of numerous industries. It not only directly influences the increase in transactions but also promotes the trading sector. In simple words, it directly affects the economy of a country by installing the latest infrastructure and by integrating new and improved growth strategies. A well managed financial strategy also helps a nation in times of recession.


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