Question

write a note on financial sector refrence ​

Answer 1

Answer:

The financial sector is a section of the economy made up of firms and institutions that provide financial services to commercial and retail customers. This sector comprises a broad range of industries including banks, investment companies, insurance companies, and real estate firms.

Answer 2

Financial Repression and Financial Liberalization

Financial systems in many developing countries are said to be "financially repressed". The government intervenes heavily in the economy, segmenting financial markets, placing artificial ceilings on interest rates, and directly allocating credit among enterprises as it sees fit. The likely result is that the total amount of savings is lower than it should be, and the allocation of the total among its possible uses is inefficient. Disequilibrium in the financial markets generates rents which may be allocated through corruption. These distortions become severe when the real economy develops rapidly and profitable real investment opportunities abound, and yet the financial system lags behind.

Third, the creation of a competitive environment alters the operating behavior of the financial firms themselves. They are forced to economize on resources. Concretely, this means that resources can no longer be squandered internally on consumption within the firm in the form of things like abnormally high salaries or entertainment expenses. It means that firms face incentives to adopt cost-reducing technologies such as information technology. Finally, in a competitive environment, financial firms are forced to increase the quality of service provided to both borrowers and lenders. For example, in the case of banks this might include things like faster clearing of payments, more rapid processing of loan applications, and extended hours for customers.

Additional benefits can be obtained through international financial liberalization. Relative to the rest of the world, newly industrializing countries tend to have high rates of return on investment. When barriers between domestic and international financial markets are removed, two things happen: capital tends to flow from capital-abundant economies where the rate of return on investments is low to capital-scarce countries where the rate of return is high, and differences in interest rates across countries tend to narrow. From the standpoint of the newly industrializing country, this means that there is more capital available for investment at a lower cost to domestic firms. If the foreign capital inflow is invested efficiently, it is possible that the economy can enjoy both higher levels of consumption both in the present and in the future, than it could if it had relied solely on domestic capital for investment.(3) The reason is that the opening of the financial market to international investment has increased the overall amount of resources available for domestic investment in the present. The higher rate of current investment, leads to greater output in the future, more than enough to pay off foreign debts while still increasing domestic consumption and welfare. The enhanced opportunities for intertemporal consumption-smoothing may be particularly important in a country like Korea which is prospectively subject to major financial shocks such as the need to finance unification.(4)