Financial services are the companies that help people manage their money. They provide credit, insurance, and securities. They also offer advisory and investment management services. These companies play a crucial role in the economy. They enable people to invest in goods and services, which helps increase the productivity of the economy. They also provide an important source of liquidity for businesses. They are also a barometer of economic health; if there is a lot of activity in the capital market, it indicates a healthy economy.
The financial services industry is a large and diverse sector. It includes central banks; depository institutions (banks, building societies or mortgage banks and companies); credit unions; insurance and pension funds; general financiers; and other firms engaged in financial intermediation or asset management. The industry also encompasses a wide variety of business services, such as accountancy and taxation services, credit card networks and service providers, currency exchange offices, wire transfer services, debt resolution services and global payment system operators like Visa and MasterCard.
A career in financial services can be very rewarding. It offers high salaries and benefits, including excellent job security. Moreover, it is an ideal sector for those who wish to work independently and be in control of their own destiny. However, the industry can be stressful and volatile, with significant ups and downs. It is not uncommon for individuals in financial services to work long hours, and it is easy to burn out. Moreover, many positions in this sector are highly specialized and require a particular skill set.
The main function of financial services is to channel cash from savers to borrowers. This is done by collecting deposits, offering loans and credit cards, evaluating the creditworthiness of borrowers, and providing deposit-like services such as checking accounts. They also add value for investors by aggregating and monitoring investments, and they redistribute risk by spreading it among many borrowers. For example, a bank pools its depositors’ money to make big loans and earn interest; this reduces the risk for individual depositors. Similarly, an insurance company pools the premiums of its policyholders to cover catastrophic losses.
In addition to the above, financial services help consumers obtain consumer products through hire purchase or leasing and make capital investments in businesses. They also provide a variety of protection services against accidents, theft and disease (life, disability income and property insurance) and against liability for loss or damage to property or possessions (car and home insurance).
While there is a distinction between a good and a service, it is not as clear cut in the financial services industry. A financial service is not the actual product itself, but the process of acquiring it. For instance, a mortgage broker provides a financial service when he or she helps a customer find a loan that suits their needs. In contrast, a credit card company provides a financial service when it offers a customer the choice of different cards that best suit their needs.