Discuss the significance of the Financial Services Sector.
Financial service sector is a category of stocks containing firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies and real estate. Financial services perform best in low interest rate environments. A large portion of this sector generates revenue from mortgages and loans, which gain value as interest rates drop.
Furthermore, when the business cycle is in an upswing, the financial sector benefits from additional investments. Improved economic conditions usually lead to more capital projects and increased personal investing. New projects require financing, which usually leads to a larger number of loans.
The financial service sector is growing at a rapid rate. The sector has seen tremendous growth in comparison to the manufacturing sector. The services now represent a significant proportion of the total economic activity in most economies. The financial institutions such as banks, insurance companies, trusts, loan companies, etc. play a vital role which act as financial intermediaries.
The financial intermediation role played by the financial service sector is very important in mobilizing savings for investment purposes. These services are unique in nature and are intangible and perishable. The product of the financial service sector is long term in nature. The banking sector is very important to the operation of the economy and to the conduct of the government economic policy.