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What Is the Financial Sector?

When watching the news or reading the newspaper, one would often encounter the term “financial sector”. This term simply refers to the part of the economy of a country that covers the organizations that deal with the flow of the money. This is a very broad term that encompasses everything from banking institutions to insurance companies to credit card companies, just to mention a few.

One important component of the financial sector is capital. As you can easily surmise, the various institutions that comprise the financial sector deal directly with capital by trading them in all sorts of methods. Some common ways by which financial institutions trade capital are derivatives, funds, investments, and debt instruments.

How is the financial sector relevant to the average consumer? Think about the last time that you had to apply for a credit card. Or perhaps go back to the last time that you went to the bank to withdraw money, deposit money, or cash a check. How about the last time that you applied for a loan? These are all ways that consumers transact business with the financial sector.

Going along the same line of thought, you can think of those transactions on a bigger scale. The exchange of money - albeit in amounts that the average person will probably not deal with - is also done on a regular basis between the different financial institutions. In a sense, the financial sector is a constant flow of capital.

Each country’s financial sector has a focal point. Perhaps the most popular of these is Wall Street in the United States. Of course, what happens in Wall Street normally affects the financial sectors in various countries as well.

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