Role of Financial Sector
A major function of the financial sector is to provide the
framework for management of cash flow situation of different
economic units such as individuals, corporates, government
agencies, etc. In simple words, the income and expenditure pattern
of individual economic units may not match at every point of time.
Financial sector helps bridging such gaps. In the process, the sector
reallocates financial resources between deficit and surplus entities.
Financial sector also facilitates management of various types of
risks. For example, an economic unit may like to deploy its surplus
fund for a short period of time and another economic unit may want
to access funds for a longer period. Left to them, there would be no
transfer of funds between these two units. But there are various
mechanisms through which the financial sector can assume certain
risks and transform the maturity of the short-term surplus of one
economic unit and meet the longer term funding requirements of
the other. Again given the shortage of public information,
individuals may not be able to evaluate investment decisions by
individual corporates and might shy away from lending money to
them. Financial intermediaries such as banks can, however, apprise
and monitor corporate investment decisions and therefore, act as