Banking And Finance Flashcards, test questions and answers

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What is Banking And Finance?

Banking and finance are two very important economic activities that are essential for the smooth functioning of a modern economy. Banking essentially involves taking deposits from the public, lending out money to borrowers and providing various financial services such as payment processing, credit creation, investment services and foreign exchange. Finance on the other hand involves managing resources including capital investments for various businesses with an aim to achieve long-term profitability.Banks play a crucial role in the functioning of an economy by providing liquidity to businesses, individuals and governments through accepting deposits from customers, lending money and investing in securities. Banks also offer financial services such as facilitating payments between parties through electronic transfers, issuing letters of credits etc., thus creating credit within an economy which is necessary for fuelling economic growth. Finance plays a major role in decision making by helping business owners determine how much capital they need to invest in order to achieve their desired return on investment (ROI). It provides businesses with insights into how they should allocate resources towards different projects or investments based on potential returns that can be expected from each project or investment. Finance also helps firms identify potential sources of funds (debt or equity) and select appropriate financing structures which best meet their requirements in terms of cost, risk and return objectives. Apart from these primary roles played by banking and finance within an economy; both these activities have now become integral components of global markets due to increased cross-border transactions resulting from globalization.