functions of financial system

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khizer hayat asked 9 months ago

functions of financial system

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afaq jafri answered 8 months ago

Functions of Financial System in India

  • Liquidity function

The most important function of a financial system is to provide money and monetary assets for the production of goods and services. Monetary assets are those assets which can be converted into cash or money easily without loss of value. All activities in a financial system are related to the liquidity-either provision of liquidity or trading in liquidity.

  • Payment function

The financial system offers a very convenient mode of payment for goods and services. The cheque system and credit card system are the easiest methods of payment in the economy. The cost and time of transactions are considerably reduced.

  • Saving function

An important function of a financial system is to mobilize savings and channelize them into productive activities. It is through the financial system the savings are transformed into investments.

  • Risk function

The financial markets provide protection against life, health, and income risks. These guarantees are accomplished through the sale of life, health insurance, and property insurance policies.

  • Transfer function

A financial system provides a mechanism for the transfer of resources across geographic boundaries.

  • Reformatory functions

A financial system undertaking the functions of developing, introducing innovative financial assets/instruments services and practices and restructuring the existing assets, services, etc, to cater to the emerging
needs of borrowers and investors.

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