revise lecture 11. lecture 11 financial services
TRANSCRIPT
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Revise Lecture 11
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Lecture 11
• Financial Services
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Financial Services
• All types of activities which are of financial nature, could be brought under the term ‘Financial Services’.
• The term in a broad sense, means ‘mobilizing and allocating savings’. Thus, it includes all activities involved in the transformation of savings into investment.
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Financial Services
• The financial services can also be called financial intermediation.
• Financial intermediation is a process by which funds are mobilized from a large number of savers and make them available to all those who are in need of them, particularly to corporate customers.
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Financial Services
• Thus, the financial services sector is a key area and it is very vital for industrial developments.
• A well- developed financial services industry is absolutely necessary to mobilize the savings and to allocate them to various investable channels and thereby to promote industrial development in a country.
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Financial Services
• Classification of Financial Services
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Financial Services
Classification of Financial Services:
The financial intermediaries in Pakistan is traditionally classified into two;
1. Capital market intermediaries2. Money market intermediaries
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Financial Services
Classification of Financial Services:
• The capital market intermediaries consist of the term- lending and the investing institutions which mainly provide long-term funds.
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Financial Services
Classification of Financial Services:
• The money market intermediaries consists of commercial banks, cooperative banks and other agencies which supply only short-term funds.
• However, the term ‘financial services industry’ includes all kinds of organizations which intermediate and facilitate financial transaction of both individual and corporate customers.
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Lecture 12
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Financial Services
• Scope of Financial Services
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Financial Services
• Financial services cover a wide range of activities. Their activities can be broadly classified into two, namely;
1. Traditional activities2. Modern activities
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Financial Services
Traditional Activities:• Traditionally, the financial intermediaries have
been rendering a wide range of services encompassing both capital and money market activities.
• They can be grouped under two breaks 1. Fund-based activities2. Non-fund based activities
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Financial Services
The fund-based activities include;1. Underwriting or investment in shares,
debentures, bonds etc. of new issues (primary market activities)
2. Dealing in secondary market activities.3. Participating in money market instruments
such as commercial papers, certificate of deposits, treasury bills and discounting bills.
4. Dealing in foreign exchange market activities
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Financial Services
The non-fund based activities:• The non-fund based activities can also be
called ‘fee based’ activities. • Today, customers, whether individual or
corporate are not satisfied with more provisions of finance. They expect more from financial service companies. Hence, a wide variety of services are being provided under this head, which include;
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Financial Services
1. Management the capital issue, i.e. management of pre-issue and post-issue activities relating to the capital issue in accordance with the SECP guidelines.
2. Making arrangements for the placement of capital and debt instruments with investment institutions.
3. Arrangement of funds from financial institutions for the client ‘project cost or their working capital requirements’.
4. Assisting in the process of getting all government and other clearances.
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Financial Services
•Modern Activities
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Financial Services
Modern Activities• Beside the traditional services, the financial
intermediaries render innumerable services in recent times.
• Most of them are in the nature of non-fund based activity.
• In view of their importance, these activities have been briefed under the head ‘new financial products and services’.
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Financial Services
Modern Activities• Some of the modern services provided by them
are;1. Rendering project advisory services right from
the preparation of the project report till the raising of funds and starting the project with necessary government approvals.
2. Planning for Merger & Acquistion and assisting for their restructuring.
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Financial Services
Modern Activities3. Guiding corporate customers in capital
restructuring.4. Acting as a trustees to the debenture holders.5. Recommending suitable changes in the
management structure and management style with a view to achieving better results.
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Financial Services
Modern Activities6. Rehabilitating and restructuring sick
companies through appropriate scheme of reconstruction and facilitating the implementation of the scheme.
7. Hedging of risks due to exchange rate risk, interest rate risk, economic risk, and political risk by using swaps and other derivative products.
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Financial Services
Modern Activities8. Managing the portfolio of large public sector
corporations.9. Undertaking risk management services such
as insurance services and buy-back options.10. Guiding the clients in the minmization of the
cost of debt and in the determination of the optimum debt-equity mix.
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Financial Services
• Sources of Revenue
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Financial Services
Sources of RevenueThere are two categories of sources of income
for a financial services company, namely ;
1. Fund-based2. Fee based
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Financial Services
Sources of Revenue• A fund-based income mainly from interest
spread (the difference between the interest earned and interest paid).
• On the other hand, a fee-based income has its sources in merchant banking, advisory services, custodial services, loan syndication etc.
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Financial Services
Sources of Revenue• In fact, a major part of income is earned
through fund-based activities. • In recent times, a number of private financial
companies have started accepting deposits by offering a very high rate of interest.
• When cost of deposit resources goes up, the lending rate also should go up.
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Financial Services
Sources of Revenue• A fee-based income, on the other hand, does
not involve much rick. But it requires a lot of expertise on the part of a financial company to offer such services.