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Functions of Financial Services Sector 🛠️

The financial services sector performs vital functions that keep the economy moving.

1. Mobilization of Savings 📥

  • People have small savings.
  • Financial institutions (Banks, Mutual Funds) collect these small savings from millions of people.
  • Example: You put ₹500 in a Mutual Fund SIP.

2. Allocation of Funds 📤

  • The collected money is lent/invested in productive sectors (Factories, Infrastructure).
  • Efficient Allocation: Money goes to the most profitable and deserving projects.

3. Facilitating Transactions 💳

  • Providing payment mechanisms (Cheques, UPI, Credit Cards).
  • Making trade and commerce easy.

4. Risk Management 🛡️

  • Insurance: Protects against loss of life/property.
  • Derivatives: Protects against price fluctuations (Hedging).

5. Price Discovery 🏷️

  • Stock Markets help determine the fair price of a company's shares based on demand and supply.

6. Providing Liquidity 💧

  • Allowing investors to convert assets (Shares, Bonds) into cash whenever needed.

Quiz Time! 🎯

Test Your Knowledge

Question 1 of 4

1. Mobilization of savings means:

Spending money
Collecting savings from public
Printing money
Hiding money

💡 Final Wisdom: "The Financial Sector is the heart that pumps the blood (money) to every part of the economic body!" ❤️💰

Next up: Classification of Financial Services - Fund Based vs Non-Fund Based! 📊

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