Answer to Question #113946 in Macroeconomics for Harrietta Alpha

Question

What is the role of the financial system?

Answer 1

A financial system can be described as a system that facilitates the exchange of money or funds between players in the financial market like investors, lenders, and borrowers. The financial system uses credit, money, and any other form of finance as an exchange medium. Financial systems are instituted at specific levels in a company both locally or globally.

Roles of financial markets.

1.     The financial system plays an important role in transferring resources through such institutions such as banks through deposits of funds, lending, and borrowing.

2.     Financial systems helps in risk management. The financial system allows for the pooling of resources together and the spreading of risk through such institutions as insurance firms.

3.     Financial systems manage and control the entry and exit of goods, assets, and services by providing the guidelines of clearance and settlement of payments.

4.     Financial systems play a major role in pricing activities to influence the decision making in trading of any economic resources. Items such interest rates are determined by the financial system to influence the trade to engage a financial asset.