When you think of banking, you may think of a bank. But do you realize that there are many different types of financial services? These companies do much more than help people manage their money. They also help people pay for things, trade, and transact. So, what is financial services, and why are they important? Listed below are some examples of financial services. Described in one sentence:
Financial services are a good and a service
A mortgage loan may seem like a financial service, but in reality, it is a product. Other examples of financial goods include stock, bonds, loans, commodity assets, real estate, and insurance policies. These goods are the primary drivers of a nation’s economy, as they facilitate free flow of capital and liquidity in the marketplace. These products also allow a nation to better manage its risks. So, how is a mortgage loan a good or a service?
They facilitate trade
Many financial services facilitate trade. This is especially the case in developing countries where KYC controls are weak and illicit financial flows are rife. According to the Global Financial Integrity, 87% of illicit financial flows from developing countries are classified as TBML, or Trans-Border Money Laundering. Globally, this problem affects about $970 billion in financial flows annually. To reduce such risk, financial services should gradually transform the controls on trade finance in order to better support SMEs in difficult economic conditions and safeguard them from sanctions and criminal abuse.
They promote domestic and foreign trade
As a result, financial services contribute to economic growth. By providing credit and other financial services, financial institutions can attract capital and raise funds to support investment, production and saving. This enables businesses to expand their activities, which in turn generates more domestic and international trade. Furthermore, financial services are a vital part of the government’s promotional activities. In order to encourage more investment, financial services help governments monitor and promote economic growth. They also help countries achieve greater dynamism through reducing their costs and promoting more production in all sectors.