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August 23, 2014

Financial Services : Meaning - Scope

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In general, all types of activities which are of financial nature may be regarded as "financial services".  The term financial services in  abroad sense means "Mobilizing and Allocating savings". It thus includes all activities involved in the transformation of savings into investment.

The financial service is also called financial intermediation. Financial intermediation is the process by which funds are mobilized from savers and make them available to the corporate customers for investment.

The financial intermediaries are classified into i) Money Market Intermediaries and ii) Capital Market Intermediaries. Money market intermediaries are commercial banks, cooperative banks and other institutions which supply short-term funds. The capital market intermediaries are term lending institutions and investment institutions.

Financial services cover a wide range of activities. They can be broadly classified into two categories. Those are,
  1. Traditional activities
  2. Modern activities.

Traditional Activities :

The traditional activities can be further classified into Fund Based Activities and Non-Fund Activities
  • Fund Based Activities : Fund based activities are concerned with provision of finance. The funds based activities which the financial intermediaries offer are,
    • Dealing in shares, bonds, debentures of new issues.
    • Dealing in secondary market activities
    • Dealing in money market instruments
    • Involving in hire-purchase, leasing, venture capital, seed capital etc
    • Dealing in foreign exchange market activities
  • Non  Fund / Fee based Activities : Non Fund based activities are fee based activities. These activities are not connected with the provisions of finance. In these activities financial intermediaries are expected to render service by charging fees. they include
    • Issue management
    • Under writing
    • Portfolio Management
    • Stock broking
    • Arranging Foreign Collaboration Services
    • Mergers and Acquisition
    • Capital Restructuring
    • Securing Capital Funds from financial institutions
    • Assisting in the process of getting clearances from the government departments

Modern Activities :

Apart from the traditional services the financial intermediaries are offering a good number of services in modern times. In the modern days of complex finance, people expect the financial service intermediaries to play a more dynamic role apart from traditional services. As a result of financial innovations new products and services are emerged in capital market. Following are the recent trends in financial services. 
  • Merchant Banking
  • Loan Syndication
  • Leasing
  • Mutual Funds
  • Factoring
  • Forfaiting
  • Venture Capital
  • Securitisation
  • Custodian and Corporate Advisory Services
The financial system provide finance for the following sectors which play very important role in the economic development of the country. 
  1. Industry and Trade sector
  2. Agriculture Sector
  3. Development funds to both Agriculture and Industrial Sector
  4. To the Government to meet both current and development expenditure
That's all for now friends. In our next post we shall discuss about the Structure of Indian Financial System. Happy Reading :)

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