Introduction to Financial Services
Q.1 What do you understand by Financial Services? Explain in brief fee based and
fund based financial services.
Ans. Financial Services – In general, all types of activities which are of a financial
nature can be brought under the term “financial services”. In broad sense, it
means “mobilizing and allocating savings”. Thus it involves all activities
involved in the transformation of savings into investment. It can also be called
financial intermediation which is a process by which funds are mobilized by
large number of sectors and make them available to all those who are in need
particularly corporate customers. Thus financial service sector is a key area and
is vital for industrial development.
Financial service help not only to raise required funds but also ensure their
efficient deployment. In order to ensure efficient management of funds, services
such as bill discounting, factoring, parking of short term funds in money market,
securitization of debt are provided by financial service firms. Besides banking
and insurance, this sector provides specialized services such as credit rating,
venture capital financing, lease financing, merchant banking, credit cards,
housing finance etc. Hence, in brief, these are the services rendered by financial
institutions and intermediaries operating in the market.
Financial services cover a wide range of activities. They can be broadly classified
into two :
(i) Traditional activities
(ii) Modern activities.
Traditional activities can be further classified as :
(i) Fund based activities/services
(ii) Fee based activities /services
Fund based activities / services are those where funds of financial institutions
are involved such as:
- Underwriting of investments in shares, debentures
- Advancing different types of loans (short term, medium term, long term) and...