The Six Core Functions Performed by the Financial System

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Across time and space, the primary function of a financial system is to facilitate the distribution and deployment of economic resources in an uncertain environment. Reviewing financial systems through a functional perspective is significant in the arrangement and development of financial markets and products, banking and equity products and the insurance sector.  Brodie and Merton (1995) determined the most aggregated level of the single primary function of resource allocation to further distinguish the six basic functions performed by the financial system. These are the following:

Function 1. Clearing and Settling Payments

In order to give way in the entry of goods, services and assets, a financial system should provide ways of clearing and settling payments.  The set of institutional arrangements for accomplishing this task is collectively known as the payments system. Banks and other depository financial intermediaries fulfill this function thru wire transfers, checking accounts, and credit cards. Function 2. Pooling Resources and Subdividing Shares

The mechanism for the pooling of funds in a financial system is done so that it could undertake large-scale indivisible enterprise or for the subdividing of shares to form larger amounts of capital. In modern economies, the minimum investment required to start or maintain a business is often beyond the regular means of an individual or even ……………………………………………………………………..

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