Notes

Understanding The Role Of The Finance Sector In Creating Economic Activity
Finance is a field of study that actually covers many different facets of the business world. The focus of finance is to provide for the economic needs of individuals, organizations, the state, and other entities. In other words, finance deals with how money is made or lost, who makes what, and when it is spent. It also deals with the risks that are involved in the money supply. This article will briefly discuss the different aspects of the finance sector.

A glance at the world economy would show that finance is the driving force behind nearly everything that happens in the financial sector. There is not one single activity in the financial sector that does not require financing as a component. For instance, an airline needs a pilot, a bank needs a loan manager, and so forth. Without finance, these activities as well as others such as the military would not be possible. Indeed, without financial institutions to oversee and direct these activities, chaos and disaster might very well follow.

Just as the name indicates, the core activities of the finance sector involve lending money. Money is actually loans that have been advanced by banks and other lending institutions. These member banks provide financial markets that are the venues for trading and financial transactions between buyers and sellers. The role of banks is particularly significant within the financial markets: in the past, the United States Federal Reserve acted as a central bank, creating and regulating interest rates and the amount of reserves the government must keep in the financial markets as a safety net against external threats.

Within the banking sector itself, there are two major activities involved in finance. The first involves risk management. Banks take on an entire gamut of risk, including both the opportunity to take on risk and the possibility that they will fail. Thus, in addition to providing for the funding of various financial activities, members of the finance sector are also responsible for risk management.

Accountancy is one of the most important and widely used activities of the finance sector. Accountancy involves the preparation of financial statements and reports at both individual and organizational levels. Accountants are also the people who perform auditing, or tests of internal controls at both organizational and bank levels, as well as providing recommendations to management concerning how to improve its financial management and risk profile.

In addition to this, the finance sector produces money, and money is what accountants, auditors, bankers, and other financial professionals use all day, every day. Money, after all, is what makes the world go around, in general. If you take into account the million people employed in the finance sector globally, the need for experts who can understand markets, assess risks, provide exit and entry points, and otherwise manage the money going in and out of the country is huge. That is why the jobs that these professionals perform are in demand. At any given moment, you can find tens of thousands of job openings for accountants all over the world.

The next thing to note about the finance sector is that it is the largest producer of consumer products in the entire world. It almost certainly is the largest employer in all of the countries that comprise the European Union. The banking industry is also responsible for arguably the largest trade within that union. All told, the finance sector supports more than 25 percent of the EU economy.

In a world where your money goes a long way, then it stands to reason that you'd want to make sure that your money is doing as much good as possible. One way that the finance sector does this is by encouraging investors to put their money into it. In doing so, it supports economic growth. The European Central Bank, for instance, has a mandate to stimulate the economy by keeping interest rates low and buying up bad debt in order to infuse cash into the system. These measures, if taken with a commitment from both the government and the finance sector, have led to significant increases in the value of the euro, the Swiss franc, the Pound Sterling, and even the Norwegian krone.
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