The Role of Finance in The Economy

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The financial system is global and virtually all nations make use of it, with endless transactions flowing in opposite directions under common commercial guidelines.  It works to promote the proper use of capital, which boosts economic growth. The importance of the concept lies in the identification of tools that assist to optimize financial flows, taking into consideration the sophistication and extensiveness of economic situations.

It also harnesses the contributions of many key players through a communication network, thus creating a plethora of advanced financial markets for corresponding supply chains of a particular financial asset. In the end, the balance is attained by matching orders between the various players of monetary or financial resources.

Financial systems have many key role players and these include the regional central banks (such as the EU central bank), the national central banks, the national treasuries, commercial banks, finance companies, social security entities and insurance companies among others.

Various financial markets (equities, interest rates, currencies and commodities) form the international financial system. Financial markets represent different aspects of finance. And they come in myriad forms which include money markets, foreign exchange market, stock market, bond market and the insurance market

On the other hand, financial intermediaries are organizations or individuals that play a facilitative role in the supply chain for financial products. They can be identified on the basis of the nature of financial products they are in a position to facilitate. Some of the best examples in this regard entail intermediaries such as financial advisors and asset managers, stock brokers, various exchanges or market platforms (trading floors), banks, insurance firms, credit companies, investment funds, pension funds, and other financial institutions.
Bank’s contribution to the financial arena is ernomous and in part involves aggregating the credit transactions of borrowers and lenders. In essence a bank takes deposits from the lenders, and in turn lends such deposits to borrowers. By so doing they enable borrowers and lenders, to coordinate their credit transactions, hence banks assume the important function of being compensators of cash flows.

Finance touches almost every sphere of human endeavor starting from private individuals to governments, non-governmental organizations (NGOs) and commercial organizations. Although the needs are dissimilar the singular goals of every participant in this expansive financial theater are realized through proper use of available financial avenues and instruments, which suit their private or organizational exploits.

Finance is a critical aspect in the life of a corporate entity or a country, thus financial departments or ministries are a key component in the day to day activities of the same. They are accorded a special emphasis with regards to their efficiency and transparency, without proper financial planning a business or country is bound to falter. Good financial management practices even at a personal level translates to a secure and successful future.


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