Roles Played by Financial Institutions in an Economy Essay

Roles Played by Financial Institutions in an Economy - Essay Example Financial Institutions play a very important role in the economy by the provision of various financial instruments (Frank, 2003). Different types of Financial Institutions provide different services to its members or clients. For example, Banks provide such services as mortgages, loans, and credit cards while on the other hand a financial institution such as Insurance Firms provide services such as insurance services, securities and buying and selling services of real estate. These financial institutions, however, interconnect with one another to provide different roles in the economy. Some of the major roles of Financial Institutions are discussed in this essay as follows. The first major role of financial institutions in the economy is that the financial institutions motivate the financial sector of the economy. Financial institutions such as banks in most cases will use the resources that they own to benefit themselves (Sera, 2005). They will use these resources to make profits for themselves and for their own growth. This is however helpful to the economy of a country as there will be an increase in the business of investing when these financial institutions grow. This because there will be a boost in the financial instruments such as an increase in the number of loans that a bank can give to an individual or to other companies. With the growth of these financial institutions, the financial sector of the economy becomes motivated and the economy of the country is strengthened. The second role of the financial institutions in the economy is that the financial institutions will introduce and develop Niche strategies.