Financial institutions and their role within the UK Economy Essay Example

new mortgage product does not charge interest, instead customers pay 'rent' for use of the property. The current account has no overdraft or credit card facility and any money paid in will be administered in accordance with Islamic law which prohibits generating interest. Previously, only a handful of smaller institutions such as the West Bromwich Building Society and National Bank of Kuwait had offered these financial products for UK customers.

HSBC's decision to cater to the Muslim community in the UK has been well-received, and is greatly appreciated. Banks play a critical role in our economy by providing a secure place for people to store their money, as well as offering credit facilities, loans, mortgages and overdrafts. The disappearance of banks would have catastrophic consequences on spending power, interest rates, and both individuals and businesses would face difficulties. The current credit crunch serves as an example of how reduced loan availability can restrict economic growth and hinder major purchases such as homes or cars. Without banks, our economy would crumble; new businesses would struggle to survive while individuals face immense challenges managing their finances.

Banks are essential for maintaining our financial stability and supporting economic growth. They provide secure storage for our money and help us earn interest on our savings. Banks also offer loans to businesses, which promotes expansion and contributes positively to the economy. We rely on banks not only for employment opportunities but also for access to credit facilities such as overdrafts, emergency cash withdrawals, or loans for purchasing homes or vehicles. Furthermore, building societies emerged as a way of people co-operating in constructing their own homes by contributing regularly to a society around

200 years ago.

After members of the house-building co-operative completed the construction of houses, each member received their own house through a lottery system. The society was dissolved upon completion. Building societies subsequently borrowed money from investors to expedite the building process, resulting in the formation of permanent building societies. In the present day, building societies primarily offer capital and mortgages for construction purposes. The Stock Exchange serves as a prominent financial institution in the UK.

Capital markets, which include institutions like the Stock Exchange, are essential for businesses seeking funds for research, development, expansion, or startup. The Stock Exchange serves two primary functions: facilitating the sale of shares for new firms to raise capital in the Primary Market, and bringing together sellers and buyers in the Secondary Market. The London Stock Exchange primarily serves larger firms, as smaller entities may not be involved.

The Stock Exchange holds two roles, as both a primary and secondary market. Its primary role involves collaborating with investment banks and companies aiming to raise capital through share sales, by listing or floating the business on the Stock Exchange. This enables them to acquire the necessary capital from the initial sale of shares. Nonetheless, the Stock Exchange's main responsibility is its secondary market which involves individuals purchasing shares for various motives such as dividend security or rising share prices.

The business would face great inconvenience if they had to take back shares from those wishing to sell and then resell them to another party, disrupting planning. Instead, the Stock Exchange serves as a market connecting buyers and sellers of second hand shares. In order to facilitate this process, the market is composed

of two main players. Trading on the modern Stock Exchange is computer-based.

Access to high-quality information is essential for both stockbrokers and market makers, and ICT facilities greatly facilitate this process. The Stock Exchange has a significant impact on the UK.