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"Ans.2) u003cstrongu003ea) u00a01st need is of Cash Flows :u003c/strongu003eu003cbr /u003eu00b7u00a0u00a0u00a0u00a0u00a0u00a0u00a0 To realize the need for good financial models we should spend time knowing what a financial sector typically deals with or trades with. Starting with cash flows, we view our customers with products and services offered by banks securities firms, and insurance companies. The financial establishments obtain our deposits, savings, and insurance premiums and give us a plethora of choices for different kinds of investment ideas, loans types, insurance cover, and pensions.u003cbr /u003eu00b7u00a0u00a0u00a0u00a0u00a0u00a0u00a0 The cash flows handled or dealt with by these organizations can be vague or unsure at some point in time and there would arise a time when some typical cash flows can not be predicted of what size they might be like for example yield on bonds or equity. To be exact, some future-bound cash flows may end up being zero or non-existent because the provider might default in such a case or the situations for payment might not be favorable.u003cbr /u003eb)u00a0 u003cstrongu003e2nd needu003c/strongu003e for a good financial model is about dealing with u003cstrongu003euncertainty and stability.u003c/strongu003eu003cbr /u003eIt is the firm responsibility of any financial establishment to discover stability or a minimum or tolerable level of imbalance or discrepancy or inequality that it deals with. This balance or stability should be achieved after the completion of all desired liabilities to customers and at the same time meeting the goal of equilibrium or stability of the financial sector.u00a0u00a0 The inconsistency or vagueness or ambiguity of reaching this balance taking into account all sorts of financial and operational risks leads to the increasing demand or need for very good financial models and companies would never shy away to try and incorporate any good idea to meet a good balance or stability.u003cbr /u003eAnother very good rationale or motivation for the need for good financial models is an opportunity for seeking or striving to understand and comprehend the various financial processes utilizing financial models. As time passes by, better understanding and execution of good financial processes will lead to all-around success and improvement in gathering information and knowledge and higher expertise in this sector."
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