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An 1 Ultimate Guide of Banking and Finance

An Ultimate Guide to Understanding the Concept of Banking and Finance

 Although banking and Finance both are different terms but nowadays, these terms are used interchangeably or collectively. These two famous terms are repeatedly used to denote services that a bank and other financial institutions or companies provide to the customers and consumers. Banking and Finance are also referred to as the term of managing your money/ finances by investing it in either bank or in other financial institutions. Basically, Finance is about the reimbursement of documents. Banking is all about directing liquidity/ money. Many people consider Finance and banking as the two sides of the same coin. A well-functioning monetary system is imperative to a contemporary economy, and banks accomplish imperative functions for a progressive society.

 What Are Banking and Finance?

 Let’s have a detailed review of banking and Finance, what this field is, and how does it work. What are the opportunities, threats, and challenges in both sectors?

What Is Banking?

Undoubtedly banking has evolved immensely with the passage of time. Banking is acceptance of deposits which are drawn able by check/draft or ATM. Otherwise, deposited money is used for lending or investment. Banking is the vast field of operations, and there are different banks for different monetary functions. Banking institutions play different roles like Intermediary role: The guarantor role and the risk management role. Helping customers in satisfying their long rang goals for a better life by building, managing, and protecting their savings.

An 1 Ultimate Guide of Banking and Finance

 Different Types of Banking Institutions

There are several diverse kinds of banking institutions, including retail banks, commercial or corporate banks, and investment banking institutions.

    • Retail Banks

Banks that offers banking services to individuals and small businesses, entrepreneurs as contrasting to the banks that are dealing with large organizations and financial institutions. Retail banking is also known as consumer banking (all activities related to consumers)

    • Commercial Banks

 Commercial banks are the financial institutions that accept demand deposits from the general public. The commercial banks transfer funds from the bank to another and earn the profit. They also perform multiple functions like leasing, lending, clearance, credit card, money transfer, etc.

    • Corporate Banks

Corporate banking is not a new concept at all. It is also known as business banking. It refers to the activities that deal with corporate customers. They provide such loans that enable businesses to grow and hire people, contributing to the expansion of the economy. These types of banks offer various products and services.

    • Investment Banks

An investment bank is a financial services provider or corporate company that engages in advisory-based financial transactions on behalf of individuals. It advises the customer to make the right investment decisions.

Banking is one of the key drivers of any companies’ economy. It provides liquidity/ money to families and businesses to invest in the future.

What Is Finance?

Finance is related to money and how it is used for different purposes like investment and insurance. It deals with the special questions of how an individual, business, or government acquire the capital in the company context and how they then spend or invest that money for future purposes like investment, profit, and expansion of the business. In short, words Finance means financing, lending, and providing cash for the company or organization. There are numerous non-banking financial institutions working around the globe

What Are Financial Institutions or Companies?

Remember, one thing bank is a financial institution, but all financial institutions are not banks or banking institutions, so never consider banks and finical institutes similar. The finance company may not deal with both the functions. They are companies registered under the Registrar of Companies. They cannot provide a check facility. Financial institutions/companies are regulated to control the supply of money and protect consumers’ rights.

Types of Financial Institutes

There are different types of non-banking financial institutes, excluding banks. Some non-banking financial institutes are mentioned under.

Development of Financial Institutions, 

Development Finance Institutions, also known as DFIs, are specialized development organizations that are usually owned by national governments of that particular country. Development finance institutes invest in private sector projects in low and middle-income countries/ areas to endorse job creation and maintainable financial growth.

 Leasing and Modaraba Companies 

Leasing companies invest their funds into lease finance investments, whereas; modaraba following companies invest their funds in Sharia compliance investment programs. Modaraba is synonymous with leasing and used in Muslim countries for the leasing process and purposes.

Venture Capital Companies

 Venture capital is a kind of private equity company. Venture Capital Company is a type of financing that investors provide to startup companies and small businesses too. These startups are believed to have long-term growth potential, and that’s why they come into existence. Venture capital generally originated from well-off investors, investment banks, and any other financial institutions.

Housing Finance Corporations/ Companies

 They provide finances related to house and also home loans. Due to the liquidity crunch, this sector is facing a downfall, but it is also one of the important financial institutions.

Difference Between Banking and Finance

Although banking and Finance services both have the same slogan to help individuals or firms manage their wealth, they differ in the way they provide this security.

    • While banking services, help in managing day to day transactions like accepting demand, term deposits, and offering loans. Financial services providers may include a much broader range like insurance, pensions, economic research, stocks, capital venture, hedge funds, and mutual funds, etc.
    • A Banking institution is an organization that receives customer cash deposits and then provides financial services like bank accounts and loans. At the same time, a Financial Company does not recognize customer cash deposits but provides all financial services except bank accounts.
    • A banking institution connects directly with customers while financial institute deals with banks and governments. A bank indulges in numerous activities linking to business/ finance with a range of customers, while financial companies mainly worried about the term loan needs of large enterprises and organizations and even for govt. An easy difference to remember is that banking services accept deposits, while financial services don’t take deposits from customers.

Importance of Banking and Finance in the Economy

 Banking and Finance both are the backbones of the economy of any country. Banks and non-banking finical institutions are a crucial part of our economy, and both are the center of Finance. Any country can’t overlook the role of banking and the financial system as it plays an imperative role in the contemporary economic world. Banks perform multiple roles, such as the collection of the savings of the individuals and lend them out to business people and manufacturers. Bank lens the loans and facilitate commerce activities in the country.

The banking system also plays an essential role in facilitating internal and international trade as you know the importance of trade and exports in the growth of any economy. With a large chunk of trade and exports, imports are supported by credit. Banks provide references and guarantees, letter of credits on behalf of their customers, on the basis of which vendors can resource goods on credit. Banks play a particularly important role in international trade when the parties reside in different countries or around the globe and are very often mysterious to one another.

How Efficient Financial Institute Plays A Vital Role in Economic Growth?

An operative and well-organized economic/ financial sector can improve the allocation of resources within an economy. It helps in by the improvement of the mobilization of resources from business units with surplus funds. The financial sector helps in facilitating the transfer of those resources from actual

savers to those economic components with an investment. The importance of this process and finical institutions cannot be miscalculated because, through this process, the resources of an economy are better utilized—financial institutes leading to a higher level of real income. The effective and proper functioning of the financial sector leads to higher average returns on investment resulting in a higher savings rate. This process yields more liquidity to the financial sector, which can contribute to lucrative investments, which ultimately will increase the success and growth rate of the economy.

The Bottom Line

Undoubtedly, the aim of the banking and financial system is to provide security and confidence in the economy. As a country or individual, you can’t negate the role of the banking and financial sector. If banks are allowed to go bankrupt, and consumers lost savings due to any reason; it can cause widespread financial terror and chaos. Nowadays Bachelors and master programs are offering by many universities regarding banking and Finance all over the world.

The aim of these courses or study programs is to develop systematic and progressive skills required by the banking industry, Finance, and financial consultancy sectors. It is also crucial to equip students with modern tools and skills and generate a workforce to deal with the challenges of recent times.

Following and pursuing a passion for banking and Finance, youth can opt for different career opportunities like a banker, investment banker, broker, financial analyzer and financial advisors, etc. To get the information and best deals please sign in by clicking the following link.

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