Question

List and briefly describe five basic roles of the financial system

Answer 1

Ans:- For the development of the economy of any country financial system plays a vital role. Every sector, every business, every industry is financed by the financial system which led to the growth and development of the economy.

Five Basic roles of the financial system:-

(1) Savings and Investment relationship: The financial system plays a mediator between the savers and the investor. For e.g Banks take the money from those who want to save and pass that to the Business owners to help them raise funds for the projects and business which helps the money to flow in the financial system and grow the economy.

(2) Capital market growth:-The financial system helps in the growth of capital markets by raising funds for the business-like working capital and fixed capital.

(3) Financial Infrastructure growth:- Financial services provided by the Banks and other financial institutions through the financial system helps in the strong growth of financial infrastructure which in turn helps the growth of the economy.

(4) Development of trade:- Financial systems help the trade development of domestic as well as foreign by providing the funds to the traders through the financial system.

(5) Employment Growth:- A healthy Financial system helps in the growth of employment and job opportunities within the economy which helps the business to flourish and grow which in turn helps the growth of the economy.