Financial Services
Financial Services
Introduction
Financial services refer to services provided by the finance
industry. The finance industry encompasses a broad range of
organizations that deal with the management of money. Among
these organizations are credit unions, banks, credit card
companies,
insurance
companies,
consumer
finance companies, stock brokerages, investment funds and
some government sponsored enterprises.
Financial services refer to services provided by the finance
industry. The finance industry encompasses a broad range of
organizations that deal with the management of money. Among
these organizations are banks, credit card companies, insurance
companies, consumer finance companies, stock brokerages,
investment funds and some government sponsored enterprises.
Introduction
Financial services refer to services provided by
the finance industry.
Services that are financial in nature.
The finance industry encompasses a broad range
of organizations that deal with the management
of money.
Among these organizations are banks, credit card
companies, insurance companies, consumer
finance companies, stock brokerages, investment
funds and some government sponsored
enterprises.
MEANING OF FINANCIAL
SERVICES
Typically, it means mobilizing and
allocating SAVINGS.
FEATURES OF FINANCIAL
SERVICES
INTANGIBILITY
INSEPERABILITY
DYNAMISM
ACT AS LINK
CUSTOMER ORIENTED
PERISHABILITY
DERIVATIVES AND CATALYSTS
DISTRIBUTION OF RISKS
IMPORTANCE OF FINANCIAL
SERVICES
Economic
Growth
Capital
formation
Promotion of
Savings
Financial
Intermediation
Contribution to
GNP
Creation of
employment
opportunities
Dominance of
Human element
Provision of
Liquidity
FUNDS DEVELOPMENT
REGULATION
SPECIALIZED SERVICES
ECONOMIC GROWTH
PLAYERS
INDIVIDUALS
MARKET
INTERMEDIARIES
REGULATORS
GOVERNMENT
RBI
SEBI
IRDA
FIRMS OR
CORPORTAES
Traditional Activities
Traditionally, the financial intermediaries have
been rendering a wide range of services
encompassing both capital and money market
activities. They can be grouped under two
heads, viz.
a. Fund based activities and
h. Non-fund based activities.
Leasing
A lease transaction is a commercial arrangement
whereby an equipment owner or Manufacturer
conveys to the equipment user the right to use
the equipment in return for a rental.
In other words, lease is a contract between the
owner of an asset (the lessor) and its user (the
lessee) for the right to use the asset during a
specified period in return for a mutually agreed
periodic payment (the lease rentals).
Consumer Credit
Consumer credit is basically the amount of credit used
by consumers to purchase non-investment goods or
services
that
are
consumed
and
whose
value depreciates quickly.
This includes automobiles, recreational vehicles (RVs),
education, boat and trailer loans but excludes debts
taken out to purchase real estate or margin on
investment accounts.
For example, a mortgage for purchasing a house is not
consumer credit. However, the 52 inch television you
put on your credit card is consumer credit.
Hire Purchase
A system by which a buyer pays for a thing in
regular installments while enjoying the use of it.
During the repayment period, ownership (title) of
the item does not pass to the buyer. Upon the
full payment of the loan, the title passes to the
buyer.
A method of buying an article by making regular
payments for it over several months or years. The
article only belongs to the person who is buying it
when all the payments have been made
Factoring
Factoring is a financial transaction
whereby a business sells its accounts
receivable (i.e., invoices) to a third
party (called a factor) at a discount.
Advantages of Factoring
Time Savings. Factoring can save you time and effort that would
otherwise be spent on collecting from customers.
Good Use for Growth. The instant cash to generate growth, maybe
hiring another salesperson who will bring in more business. Or
buying an advertisement that will reach new customers. Or buying a
piece of equipment that will accelerate production.
Doesnt Require security. Unlike traditional bank loans, factoring
doesnt require to risk your home or other property as collateral.
Qualify for More Funding. Factoring firms will typically give a cash
advance on up to 80% of receivables. That may be more than be able
to get from a bank.
Forfaiting
It is a form of financing of receivables relating to
international trade.
It is a form of supplier credit in which an exporter
surrenders possession of export receivables,
which are usually guaranteed by a bank on the
importers country.
Forfaiting is a mechanism of financing exports:
Bills Discounting
While discounting , banks buy the bill before it
is due and credit the value of the bill after a
discount charge to the customer's account.
There are two types of bill discounting
Import Bill Discount is a kind of short-term finance
offered by the bank to the importer according to
his demand upon receiving the bills under the
letter of credit and the import collection items.
Bills Discounting
According to the Indian Negotiable
Instruments Act, 1881
The bill of exchange is an instrument in writing
containing an unconditional order, signed by the
maker, directing a certain person to pay a certain
sum of money only to, or to the order of, a certain
person, or to the bearer of that instrument.
Housing Finance
Housing finance is what allows for the
production and consumption of housing.
It refers to the money we use to build and
maintain the nations housing stock.
But it also refers to the money we need to pay
for it, in the form of rents, mortgage loans and
repayments.
MERCHANT BANKING
CREDIT RATING
STOCK BROKING
SECURITIZATION OF DEBTS
LETTER OF CREDIT
BANK GUARANTEE
Stock Broking
The process of investing in the share market,
either individually or through a broker is
known as stock broking.
This is primarily done by opening a Demat
account.
If done through a broker, he opens an
account, helping to operate through online
stock broking facility.
Stock broker
Licensed agent who has to pass certain qualifying
tests to be certified to offer securities investment
advice to investors.
He or she may
Credit Rating
It is an opinion on the future ability and legal
obligation of an issuer to make timely
payments of principal and interest on a
specific fixed income security.
As per credit rating agencies regulations 1999
rating means
An opinion regarding securities
Expressed in the form of standard symbols
Assigned by a credit rating agency
Used by an issuer of such securities
Industrial companies
Banks
Non-banking financial companies (NBFCs)
Infrastructure entities
Microfinance institutions
Insurance companies
Mutual funds
State governments
Urban local bodies
Modern Activities
Beside the above traditional services, the
financial intermediaries render innumerable
services in recent times. Most of them are in
the nature of non-fund based activity. In view
of the importance, these activities have been
in brief under the head 'New financial
products and services'. However, some of the
modern services provided by them are given
in brief hereunder.