How does a Financial Services Company work?

by Alankit Group Financial Advisor

Finance Services sector plays a critical role in modern economy. They are economic services provided by the finance industry which has in its orbit broad range of organisations that manage money of all sorts.

Financial Services Company manages, invests, exchanges or holds money on behalf of its clients. Money being most volatile and complex there are increasing number of activities that are under the ambience of financial services company.

Insurance is the oldest and largest financial service in the world. It comes under the purview of this sector as it protects against the loss of money or property and insurance companies are often involved in bulk investment. Insurance companies after a certain point of time receive more money from premiums than it has to pay as claims and this extra money is called float, which is invested by Insurance companies to earn return.

Banks are the type of financial services company which is most common and reliable that offers spectrum of services to its customers like provide accounts, electronic fund transfers, loans etc under the reasonable charge. The deposits collected by the banks are invested by them in the form of loans that they give to the fund borrowers under the prescribed rate of interest. This rate of interest is the profit or earnings of the banks.

Foreign exchange is another type of financial service that is transacted on a small scale most often by small businesses. They involve trading one currency for one another at its market value. A certain amount of commission is received for doing this. Large scale foreign exchange has array of services in which banks buy and sell mammoth amounts of foreign currencies.

Credit card companies lend loans to the individuals for specific purpose like financing car, buying home etc on the purchase of credit card of certain denomination. The company adds interest charges to your account which is their earnings. They are in wide usage as they are the easiest mode of making payment. Also the company charges minimum at the closing balance.

Consumer finance companies are non banking institutions that render loan to their customers for buying their household appliances such as purchasing electronic items like air conditioners, washing machines etc. They are boon for those consumers who are unable to secure bank loans. They are the medium of small loans that generally charges a higher rate of interest than the bank.

Stock brokerage companies buy and sell securities like shares, stocks and other securities in the market. They charge commission for each transaction. Credit unions, non banking institutions accept deposits and make loans. They encourage you to save what you can and borrow only what you can afford to repay. It is not for profit organisations where in the members pool their savings to lend one other and aid to run the credit union.

Financial services are core of any economy that has both inflationary and deflationary effects in tandem with the movements of the market.

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