Question

Identify and briefly describe the financial functions in the financial system.

Looking for a type-in answer

class of finance

Answer 1

Solution.>

The financial functions in the financial system are:

1> Clearing and Settling Payments

A financial system should provide ways of clearing and settling payments in order to give way in the entry of goods, services, and assets.Banks and other financial depository intermediaries perform this function through wire transfers, checking accounts, and credit cards.

2> Transferring Resources Across Time and Space

A financial system's ability to transfer resources across time and space is an interesting function. This role is fulfilled by intermediaries such as banks involved in the financing of corporate investment and housing, insurance companies and pension funds in the financing of corporate investments and the payment of pension annuities, and mutual funds.

3> Managing Risk

A sound financial structure offers ways to cope with instability and risk. It enables efficient risk bearing distribution. The financial system provides risk-pooling and risk-sharing opportunities for both households and business enterprises.

4> Providing Information

The price information is important, as it helps to coordinate decentralized decision-making across different economic sectors. A financial system provides that easily. In order to manifest this function of financial markets, financial assets are allowed to be traded by individuals and companies.

5> Dealing with Incentive Problems

If one party to a financial transaction has knowledge that the other party is not doing, or if one party is an agent for another, the financial system may find a way to solve these incentive problems.

6> Pooling Resources and Subdividing Shares

The mechanism for pooling funds in a financial system is done in such a way that it can undertake large-scale indivisible enterprise or form larger amounts of capital by subdividing the shares.

Note: Give it a thumbs up if it helps! Thanks in advance!