Financial Products

and its Effects on GDP

By Jayadev Nair, Timespro, Cochin

DEFINITION OF GDPThe total value of output of goods and services produced within an economy in a given period of time.

COMPONENTS OF GDP

KEY CONCEPTS OF GDPTo measure economic activity, one needs a meaningful aggregation of all kinds of productions. It includes1)Effective demand2)Production capabilities3)Income

SIGNIFICANCE OF GDPoGDP is used as an indicator for most governments and economic decision-makers for planning and policy.

oGDP helps the investors to manage their portfolios by providing them with guidance about the state of the economy.

oGDP is a major economic barometers that heavily influence the pace of growth or contraction in a country.

INCREASE IN GDP LEADS TO……………….ECONOMIC GROWTH

• Economic growth is the increase in value of the goods and services produced by an economy over a period of time.•It is conventionally measured as the per cent rate of increase in real GDP.•Growth is usually calculated after considering the inflation on the price of goods and services. •Increase in employment opportunity is also a factor of economic growth.

FINANCIAL PRODUCTSFinancial products refer to instruments that help you save, invest, get insurance or get a mortgage. These are issued by various banks, financial institutions, stock brokerages, insurance providers, credit card agencies and government sponsored entities.

FINANCIAL PRODUCTS AND GDPFinancial products plays a major role in fluctuations in the rate of GDP. Economic growth is mainly based on the increasing rate of GDP. The main financial products that will increase GDP in the present scenario are1. Mutual funds2. Stock Market3. Insurance4. Fixed Deposits5. Treasury Bills

MUTUAL FUNDS

STOCK MARKET

INSURANCE

FIXED DEPOSITS

TREASURY BILLS

MUTUAL FUNDS

A mutual fund is an institutional device through which investors pool their funds and invest the same in capital market instruments such as shares, debentures etc. It is a collective form of investment.

STOCK MARKET

A stock market or equity market is the aggregation of buyers and sellers of stocks or shares. These may include securities listed on a stock exchange as well as those only traded privately.

INSURANCE

Insurance product is a contract entered into by an insurer and insured that provides relief to the insured on the occurrence of an unforeseen incident involving loss of life or property of the insured in return of premium.

FIXED DEPOSITSA fixed deposit (FD) is a type of deposit made with the bank for a fixed period of time. Customers get a higher rate of interest than regular savings account. Period of these deposits can be from 7 days to 10 years.

Treasury Bills [ T-Bills]

Treasury bills are short term borrowings of the Government. It enjoys higher degree of liquidity. T-bills can be issued only by central government. These are available for a minimum amount of Rs. 25000 and multiples of 25000.

The GDP is the most important indicator on the health of a country’s economy. GDP is a board measurement of a nation’s overall economic activity.