Contemporary Issues in Financial Services Essay

Contemporary Issues in Financial Services - Essay Example These factors can be consumed in the present time or utilized with an aim of producing in the future. Economic activity is taken as real because real resources are utilized to come up with new products that can be bought and used. On the other hand, the financial system mainly focuses on either circulating funds around to enable people buy goods and services or assist people exchange ownership of resources vital for production purposes. It is worth mentioning that activities of the real economy are vital for human survival. The real economy is responsible for the production of consumer goods, food, lighting, heating, and entertainment to mention but a few (Mankiw 2008, p.162). The role of the financial system is to facilitate the production of such goods by ensuring that funds are available when needed. Therefore, the structure of the financial system comes to the fore since it would offer alternative financing windows. These institutions provide an avenue through which large or smal l manufacturing sectors can access finance, which would boost production. The role undertaken by the financial system in coordinating economic activities, which includes the cost of finance, profitable investment outlets, and availability of investment funds, has a direct relationship with the structure of the financial system. ... However, it appears that most economists are in agreement that a link exists between the financial system and the real economy (Burton & Brown 2009, p317). The structure and role of the financial system The financial system is made of financial institutions and financial markets. Examples of the financial institutions include the banking system (banking institutions and the central bank), and non-bank financial institutions (insurance and pension funds). The financial markets are made of foreign exchange markets and money markets, capital markets, which include bond markets, private debt securities, public debt securities, and equity markets, and the derivatives markets. The current literature work has not fully addressed the issue of the role and structure of the financial system essential in facilitating and sustaining growth. There are two general agreements in relation to the role and structure of financial systems; first, countries with good working banks and financial markets c an increase their growth pace. Secondly, better functioning financial systems reduce the burden on external financing, which hinder firm and industrial expansion (Mordi 2010, p.8). Role played by the financial sector in the economy A crucial role that the financial sector plays within an economy in the facilitation of growth is the reduction of enforcement, information, and transaction costs. This function is achieved through a number of unique functions performed by the financial sector. Therefore, the financial sector has some basic functions that include provision of efficient modes of payment for the whole economy, and intermediary between lenders and borrowers. The