The Student Loan Industry: Key Players And Market Dynamics – The economy is made up of many different segments called sectors. These sectors consist of different businesses that provide goods and services to consumers. The variety of services offered by lending institutions, brokerage firms and other businesses are collectively referred to as the financial services sector.
The financial services sector consists of banking, mortgages, credit cards, payment services, tax preparation and planning, accounting and investing. Financial services are often limited to the activities of firms and professionals, while financial products are the financial instruments that these professionals provide to their clients.
The Student Loan Industry: Key Players And Market Dynamics
The financial services sector provides financial services to people and businesses. This segment of the economy consists of various financial firms including banks, investment houses, lenders, finance companies, real estate brokers and insurance companies.
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As noted above, the financial services industry is one of the most important sectors of the economy. Large conglomerates dominate this sector, but it also includes a diverse range of smaller companies.
According to the finance and development department of the International Monetary Fund (IMF), financial services are the processes by which consumers or businesses acquire financial goods. For example, a payment system provider offers a financial service when it accepts and transfers funds between payers and recipients. This includes accounts settled by credit and debit cards, checks and electronic funds transfers.
Companies in the financial services industry manage money. For example, a financial advisor manages assets and offers advice on behalf of a client. The adviser does not directly provide investments or any other product, rather, they facilitate the movement of funds between savers and the issuers of securities and other instruments. This service is a temporary assignment rather than an intangible asset.
Financial goods, on the other hand, are not tasks. They are things. Amortgageloan may seem like a service, but it is actually a product that lasts beyond the initial supply. Stocks, bonds, loans, commodity assets, real estate and insurance are examples of financial goods.
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The sector of financial services is the main driver of the economy of a nation. It provides the free flow of capital and liquidity in the marketplace. When the sector is strong, the economy grows, and companies in this industry are better able to manage risk.
The strength of the financial sector is also important for the prosperity of the country’s population. When the sector and economy are strong, consumers generally earn more. This strengthens their confidence and purchasing power. When they need access to credit for large purchases, they turn to the financial sector to borrow.
A strong financial sector can lead to economic growth, while a failing system can drag down a nation’s economy.
If the financial sector fails, however, it can drag a country’s economy down. This can lead to recession. When the financial system begins to break down, the economy begins to suffer. Capital is starting to dry up as lenders tighten the reins on lending. Unemployment rises, and wages may even fall, causing consumers to stop spending.
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To compensate, central banks lower interest rates to try to boost economic growth. This is primarily what happened during the financial crisis that led to the Great Recession.
The banking industry is the foundation of the financial services group. It is most concerned with direct saving and lending, while the financial sector includes investments, insurance, the redistribution of risk and other financial activities. Banking services are provided by large commercial banks, community banks, credit unions, and other entities.
Banks earn income primarily on the difference in the interest rates charged for credit accounts and the rates paid to depositors. Financial services like these mainly earn income through fees, commissions and other methods such as the spread of interest rates between loans and deposits.
Banking consists of several segments – retail banking, commercial banking and investment banking. Also known as consumer or personal banking, retail banking serves consumers rather than corporations. These banks offer financial services tailored to individuals, including checking and savings accounts, mortgages, loans and credit cards, as well as certain investment services.
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Corporate, business or commercial banking, on the other hand, deals with small businesses and large corporations. Like retail banking, it provides account services and credit products that are tailored to the specific needs of businesses.
An investment bank typically works only with traders and high-net-worth individuals (HNWIs)—not the general public. These banks sign agreements, secure access to capital markets, offer wealth management and tax advice, advise companies on mergers and acquisitions (M&A), and facilitate the buying and selling of stocks and bonds. Financial advisors and discount brokers also occupy this niche.
Individuals can access financial markets such as stocks and bonds through investment services. Brokers – whether human or self-directed online services – facilitate the buying and selling of securities, taking a commission for their efforts. Financial advisors can charge an annual fee based on assets under management (AUM) and direct multiple trades to build and manage a well-diversified portfolio.
Robo-advisors are the latest incarnation of financial advice and portfolio management, with fully automated algorithmic portfolio and trade execution.
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Not all investment services in the financial sector are available to everyone. High net worth individuals (those with a net worth of $1 million or more in liquid financial assets) have many more options open to them for investments.
Hedge funds, mutual funds and investment partnerships invest money in the financial markets and collect management fees in the process. These organizations require custodial services for trading and servicing their portfolios, as well as legal, compliance and marketing advice. There are also software vendors that serve the mutual fund community by developing software programs for portfolio management, client reporting, and other administrative services.
Private equity funds, venture capital providers, and angel investors provide investment capital to companies in exchange for ownership interests or profit participation. Venture capital was particularly important to technology firms in the 1990s. Much of what goes on behind the scenes in the making of great deals is attributed to this group.
Insurance is another important sub-sector of the financial services industry. Insurance services are available for protection against death or injury (eg, life insurance, disability income insurance, health insurance), against property loss or damage (eg, homeowner’s insurance, auto insurance), or against liability or litigation.
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In the United States, an insurance agent is different from a broker. The first is a representative of the insurance company, while the second represents the insured and buys insurance. This is also the realm of the underwriter who assesses the risk of insuring clients and also advises investment bankers on loan risk.
Reinsurers are in the business of selling insurance to the policyholders themselves to help protect them against catastrophic losses.
The sector also includes accountants and tax-filing services, currency exchange and wire transfer services, and credit card machine services and networks. It also includes debt settlement services and global payment providers such as Visa and Mastercard, as well as exchanges that facilitate stock, derivatives, and commodity trades.
Accountants ensure that all financial records and statements—the balance sheet, income and loss statement, cash flow statement, and tax return—comply with federal laws and regulations and generally accepted accounting principles (GAAP).
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Accountants also compile the information needed to prepare entries to corporate accounts such as the general ledger, and they document business financial transactions over time. This information is used to prepare weekly, monthly, quarterly or annual closing statements and cost accounting reports.
Accountants must also resolve any discrepancies or irregularities they find in records, statements or documented transactions. They typically observe established accounting control procedures through an accounting system or software.
A good tax accountant can save you a significant amount of money at tax time; especially if you have many different assets.
Accountants are often given other financial-related tasks in addition to analyzing financial records and statements. Assistant job duties include monitoring the effectiveness of accounting control procedures or software programs to ensure they are up to date with federal and state regulations. Auditors are also tasked with making recommendations to various departments or C-suite staff regarding the effective use of company resources and procedures. These recommendations are intended to provide solutions to potentially costly business financial concerns or problems.
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In some cases, accountants may also prepare and review invoices for customers and vendors to assist with the timely payment of outstanding balances. Reconciliation of payroll, confirmation of contracts and orders, construction of a company budget, and the development of financial models or projections may also be part of the regular responsibilities of an accountant.
In addition to these duties, accountants prepare and file taxes for companies and individuals. They analyze all company assets, income earned and paid, or anticipated expenses and liabilities to arrive at a total tax liability for the year. With both company and individual tax preparation and filing, accountants are expected to provide a detailed analysis of tax efficiency or ineffectiveness and make recommendations on how to reduce overall tax liabilities in the future.
The financial services sector consists of banking, investing, taxes, real estate, and insurance, all of which provide different financial services to people and businesses.
No, the financial sector is not the same as the banking sector. The banking sector is one component of the financial sector, which consists of many other components. The banking
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