When Does Finance Develop?

Is financial development doomed never to take place because incumbents are so powerful? Clearly not.. Some countries have enjoyed a strong financial systems at certain points in time, and there has been a worldwide boom in the financial sector in the last few decades. This must mean that sometimes incumbents cannot get together to block development, and even if they do so, the tyranny of incumbents can be broken and development unleashed.

The notable reason behind for incumbents not to oppose development blindly is that they themselves can benefit from financial development when their investment opportunities are high relative to their ability to finance them. A sudden expansion in required scale, perhaps because of an opening of new markets for their products, increases their demands for financing. Alternatively, a sustained period of poor economic conditions may deplete incumbents reserves of cash, forcing them to seek finance and allowing them to be more amenable to financial development when the economy turns up.

Financial system is the set of systems, institutes, instruments , markets as well as the legal and regulatory framework that permit transactions to be made by extending credit. Fundamentally, financial sector is about overcoming costs incurred in the financial system. This process of reducing the costs of acquiring information, enforcing contracts, and making transactions resulted in emergence of financial contracts, markets and intermediaries. Different types and combinations of information, enforcement and transaction costs in conjunction with different legal, regulatory and tax systems have motivated distinct financial contracts, markets, and intermediaries across countries and throughout

FUNCTIONS OF FINANCIAL SYSTEM.

(a) Producing information ex ante about possible investments and allocate capital.

(b) Monitoring investments and exerting corporate governance after providing finance.

(c) Facilitating the trading, diversification, and management of risk.

(d) Mobilizing and pooling savings.

(e) Easing the exchange of goods and services.

IMPORTANCE OF FINANCIAL DEVELOPMENT.

A large presence of proves or evidence confers that financial sector development is primarily very important for economic development. It encourages economic growth by capital accumulations and technological progress by increasing the saving rates, mobilizing and pooling savings, awareness regarding investments. Financial development has a impeccable impact on the emerging markets, banking systems, increasing the commencement for financial inclusions which eventually assists in creating that very desired structure for financial development when seen from a holistic point of view. When seeing this increase in the financial development the economy of any country automatically increases, just as like having a directly proportional kind of a relationship, more is the financial development, greater are the chances of increasing economy.

Finally, and perhaps most important, increased competition resulting from forces beyond the control of incumbents in particular, competition as a result of technological changes and competition stemming underdevelopment as a barrier of domestic entry. We now need to examine all this in very comprehensive way to bring out more valuable ideas that could bring up the cause of collecting all those reasons so as to create a developing financial system and create a better global economy.