Role of Finance in the Economy
                     
 



 
 
Role of Finance in the 

Economy 


The economical growth and development of any 
country relies upon its economic state of banks, stock 
markets, insurance sector, pension funds along with 
a government-run central bank with authority, or at 

best influence, over currency and rates of interest. In 
civilized world, both of these sides from the economic 
gold coin interact to advertise growth and runaway 
of cost inflation.  

 


Banking Systems 
 
Banks would be the cornerstone of the national 
economic climate. Their key services are to supply a 
safe place for that earnings of people and loans to 
companies looking for capital, with the idea to start 
operating or in which to stay business. Without it 
supply of available capital, companies could be hard-

pressed to carry on growing and coming back an 
income for their proprietors and outdoors investors. 
By channelling savings in to the business sector 
through loans -- as well as offering loans to the 
people to purchase cars and houses -- banks boost 
overall economic development and growth. 

 


Markets 
 
Stock markets offer an chance for people to 
purchase companies. By issuing shares, public 
companies repay debt or raise investment capital for 
his or her operations. The text market provides 
another way to raise money. When a person or 
perhaps an investment company buys a bond, it 
receives a steady flow of great interest payments 
more than a period of time. The text marketplace is 
available to companies in addition to governments, 
which also require a reliable stream of funds to 
function.  

 


Financial Crashes 
 

In any country, confidence and rely upon the 
banking system are very important for economic 
health. If banks cannot redeem savings accounts, and 
savers start to fear a loss of revenue of the money, a 
financial institution run results this rapidly drains 
cash in the bank and may eventually make the 
institution to fail. Bond and stock markets fall and 
rise using the interest in investment when loose their 
rely upon the markets, they offer their securities and 
cause the need for companies to fall.  

 


Financial Policy 
 
Issuing currency and setting rates of interest may be the 
purpose of government-operated central banks, like the 

U.S. Fed, which have the effect of financial policy. The 
central bank and also the U.S. Treasury "primes the pump" 
by loaning new money towards the banks by controlling 
this flow, the central bank also keeps foreign exchange 
rates steady, that is vital for move and new investment. 
Setting a greater rate of interest has a tendency to 
support currency value, while decreasing the rate 
encourages lending and investment -- at the chance of 
currency devaluation and cost inflation. Consistent and 
reliable financial policy boosts economic stability and 

growth. 

 


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