Financial Sector

• The financial Sector


  The financial sector refers to the part of the economy that deals with all financial transactions.
• What is the head of the financial sector?

  Central Bank
• Functions of the Financial Sector

  • It attracts funds from individuals and firms
  • It affords firms and individuals an opportunity to earn interest on their idle money.
  • It provides a source of funds to the government for investment purposes.
  • It provides individuals and firms the opportunity to own share in companies.
  • It provides compensation when mishapes occurs, thus, reducing financial risks in the economy.
• Informal Sector


  Refers to all business activities which are not regulated by the government.
• Moonlighting


  This is a situation in which a person is involved in the formal sector and the informal sector.
• Repo-rate


  Interests rates that the central banks charge commercial banks when they lend them overnight funds.
• How can repo-rate influence the level of inflation?

  If central banks increases the repo rate, then commercial banks will increase their rates of interest. This will lead to greater saving and less borrowing.
• Commercial Banks


  Commercial banks provide individuals and firms with banking services. Commercial banks are profit making services.
• Functions of Commercial Banks:

  >Commercial Banks accept deposit from individuals and firms

  >Make loans with individuals, firms and the governments

  >Commercial Banks offer safe keeping services.

  >Commercial banks offer a wide range of services such as letter of credit, bill of collection, cheque services, debit and credit card services and 24 hours services.

  >Commercial Banks offer foreign currency services.
• Stock Exchange

  A stock exchange is a corporation that brings buyers and sellers of companies stocks together. Aka bourse
• Stock Brocker


  A stock broker is a licsened individual who acts as an agent for clients.
• Functions of the stock exchange:

  • Stock exchange facilitates the trading of shares
  • Brings in foreign investments
  • Raising capital
  • Maintaining Liquidity
• Central Bank


  This is regarded as the government's bank.
• Functions of the central bank:

  • Makes payments on behalf of the government and manages national debt
  • Makes temporary loans to the governments.
  • Keeps a record of the governments financial activities and maintains the government's accounts.
  • Acts as an economic agent for the government.
  • It is responsible for storing country's gold.