Question

• Clearly identify and briefly explain the major functions performed by the financial system and the banks’ role in facilitating these functions;

Answer 1

Financial System- It is a system and network of financial institutions, intermediaries, instruments, markets and services.

Major functions performed by financial system- Are as following:

1. It provides financial resources to the people and companies in the country.
2. It serves as a link between borrower and depositor.
3. It maintains the liquidity of funds in the overall system.
4. It helps reduce cost of transaction, it also saves time of people by providing variety of financial services online.
5. It helps in reducing risk by providing asset allocation and diversification.
6. It provides efficient and secured functioning of financial trade and payment.

Role of Banks in facilitating these functions: Banks are the mediator between savers and investors, it borrows money from those who have abundance of it and lends money to those, who need it. Banks provide interest income to people. Banks keep their money safe and provide high liquidity. Banks provide loan to the needy in no time. Banks provide financial products through online portals so that time and money of customers can be saved. Banks are very important in our system. People blindly rely upon banks and banks always provide trustworthy services.