Understanding the Role of Finance in Industries
Category : Finance
Finance is the procedure of acquiring funds by the exchange of bonds, stock options or mortgage payments. An individual who engaged in finance as an investor or as an authorized lender can be called a “holder” in the industry. A bank is an issuer of loans and other forms of credit. Holders of various financial obligations are called borrowers. Finance can be divided into two main categories: foreign exchange and commodity markets.
Foreign exchange is the buying and selling of currencies of different countries. Commodity markets deal with agricultural products like grain, livestock, oil, aluminum and gold. Some of the financial products traded in commodity markets are currencies, stock indices, interest rates and bond market. Forex is the largest of these markets.
Commercial banks are part of finance industry. They play an important role in the economy. Commercial banks facilitate smooth functioning of finance. Commercial banks hold money and create demand for it by creating new loans. It facilitates banking and monetary activities by creating a market for loans. It participates in international transactions by facilitating trade between entities.
The role of banks is crucial and they have to play a major role in the economy. Without bank’s money and finance would not be possible. Commercial banks lend money in the form of bank loans, mortgages, and savings account. They create business opportunities by giving commercial loans. They participate in various mergers and acquisitions by creating new companies.
Finance sector is made up of three main sectors namely real estate, infrastructure and commodity markets. Real estate includes equestrian assets, land and development land, improvements on the existing structures, raw materials like petroleum, coal and iron ore, houses and buildings and financial instruments on the same. Infrastructure comprises bridges, tunnels, airports, highways, seaports, pipelines, cable roads etc. Commodity markets include agricultural products, livestock, meat and fish products, sugar, aluminum, steel, wheat, milk and wool. Financial sector includes bank deposit interest rates, government debt, corporate bonds, market indices, financial derivatives, securities, corporate and government debt, equity and derivatives market, bank loans, and pension and insurance sector.
The banking sector involves managing the overall resources with regard to finance. It creates demand and supply of money and financial products by creating demand for savings, creating employment, and creating investment opportunities. Commercial banks give loans to businesses in the form of bank loans, commercial loans, business loans, consumer loans, debt and commodity markets. They also participate in mergers and acquisitions and financial markets. They also create demand and supply of money through creating demand for gold, silver, oil, natural gas and other commodities.
As far as the financial markets are concerned they relate to various processes which involve the buying and selling of bonds, securities, currencies and futures. It involves short term and long term debt and finance market. As far as metals are concerned they are metal and petroleum commodities and metals like gold, silver, aluminum, iron ore, copper, rubber and oil.
Finally we come across the energy sector. Energy is a broad sector and it includes bio fuels, petroleum, coal, nuclear energy and electricity production. It is one of the fastest growing sectors and contributes to about 40% of the total finance and monetary supply in the world.
The information above gives a clear picture of the financial markets and their role in the economy. The finance and monetary system is generally created and controlled by the banks. Banks lend money and invest in various financial products. Banks form the base of all capital markets. They facilitate finance and monetary system by providing credit facilities to businesses and individuals.
As the finance and monetary systems of a country grow, it results in the accumulation of wealth. This wealth is used for the growth of the economy. When there is enough capital in the hands of people, they can buy properties, invest in businesses and increase their income. As the number of businesses and individuals increases, so does the demand for finance and monetary products.
In present times, finance and monetary systems play a vital role in determining the direction of an industry. Finance and monetary system can make industries boom or stagnate. Lagging economic indicators, inflation and price rise can make the industrial sector worried. Hence finance and monetary policies are crucial for the growth of industries.