Business in Focus

Introduction

Humans essentially create their own cultural and social environment. Customs, practices and traditions for survival and development are passed down from one generation to the next. In this way, the members of a particular society become conditioned to accept certain "truths" about life around them. The increasingly competitive financial institutions (services sector) are therefore called upon to tailor or adapt their business approach to the culture and traditions of a modern society. The inability or unwillingness to do so could become a serious obstacle to the success of any society.

The social-cultural environment consists of the range of behaviours and relationships in which people engage in their personal and private lives. The relationship between, culture and society involves a two-way interaction. People carry values and attitudes shaped by the wider culture into business (e.g. sexist attitudes). At the same time business (eg. Financial services sector) affects the wider culture and society profoundly.

Poverty, privatization, promotion of open market economies, advances in technology and science, effects of advances in health, and epidemiological transition, changes caused by demographic transition, urbanization, and globalization, are common factors influencing families, mainly resulting in the average family desiring the need to have lifestyles that brings convenience and comfort.

For example the average family wants to enjoy TV or radio programs, communicate with friends through telephone or work with the computer while washing machine, refrigerator and air-conditioners are running.

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There is no doubt that this type of development has had a profound impact on the financial services sector. More specifically significant technology growth has placed the nations monetary structure at a dynamic crossroads, new methods of payment and purchase have been developed that are eclipsing older, more paper based forms. In fact this financial innovation has lead the Financial Services Policy Committee of the Federal Reserve System to form a taskforce in 1996 to further research emerging payment technologies. [insert reference]

[To talk about money demand and supply with diagram.]

http://www.oup.com/uk/orc/bin/9780199203055/wetherly_ch05.pdf

Financial services are growing fast in the UAE, in the year 1998 the finance institution and insurance represented 7.98% from the Gross domestic product and in the year 2001 the finance sector had grown to reach 11%, which shows the level of financial services in the country.

The financial services sector refers to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money.

They vary from country to country but generally include credit union, banks, credit card coompanies, consumer ¬finance companies, stockbrokerages, investment funds and some government sponsored enterprises. As of 2004, the financial services industry represented 20% of the market capitalization of the S&P 500 in the United States.[1]

Financial institutions mainly engage in intermediation and provision of financial services -for example, by taking deposits, borrowing and lending, supplying all types of insurance cover, leasing and investing in financial assets. Banks in most countries are the largest deposit-takers and financial services providers, but the market shares and power of other organizations like insurance companies is increasing. Banks and insurers are also among the largest and most profitable enterprises in both domestic and global markets. This is hardly surprising, since money, the business of financial services, went global before "globalization" became a buzzword; however, liberalization and technological advances are increasingly pushing the sector towards greater globalization in which M&As are both a cause and a consequence. Sixty-four banks and 53 insurance companies figure among Fortune Magazine's Global 500.

Purchasing power is directed toward certain goods and services and away from others according to people's tastes and preferences. Society shapes the beliefs, values, and norms that largely define these tastes and preferences. People absorb, almost unconsciously, a worldview that defines their relationships to themselves, to others, to organizations, to society, to nature, and to the universe. (CiteMan Network, 2006)

Recall that money's purchasing power is its price, equal to the reciprocal of the price level: PPM=1/P. When the purchasing power of money declines (and the price level rises) we want to hold more money, other things being equal. We desire money only because we can buy things with it, and we need more to acquire the same goods and services when money's purchasing power declines. The desire to acquire money may be to spend immediately or in the near future, which is a form of saving.

The central increases the (of) money supply for various reasons and ultimately causes the expected inflation. Since there's more money in the economy, people start charging more to grab more of the extra dollars and suddenly you need more money the next year than what you needed before. More money in an economy causes rise in inflation.

There are two theories of inflation that must be taken into consideration. Firstly there is the Cost Push Inflation, which occurs when businesses respond to rising production costs and higher import prices by raising prices in order to maintain their profit margins. There are many reasons why costs might rise. The other (Demand-pull inflation) is likely when there is full employment of resources and when SRAS is inelastic. In these circumstances an increase in AD will lead to an increase in prices. AD might rise for a number of reasons - some of which occur together at the same moment of the economic cycle ( Riley & College, 2006)

Cost-push inflation can be illustrated by an inward shift of the short run aggregate supply curve. From AD 1 to where This is shown in the diagram above.

One of the best known, of the various inflation theories is

the monetary approach. As the increase in the money supply can come from various sources, it is the monetary growth that matters, rather than underlying factors that may be responsible for it.

The second approach attempts to look behind simple monetary/inflation correlations to identify the source of in large fiscal deficits. Supporters of