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Financial Services Functions And Roles Essay

1249 words - 5 pages

Introduction:The financial systems are markets that exist in every country (as long as money is involved, so is the financial system)It is an essential part of the economyIt also help in the growth and development of the economyIts main role is to provide services that help business to operate correctly and smoothlySince it has a huge impact on the economy and deeply involved with money, there is a need of controlling and supervising.Thus the financial system "is the totality of the financial transactions that take place and the financial instruments that they give rise to" (Mason 1976: xiv). It comprises a network of financial institutions and financial markets.Body:Financial institution ...view middle of the document...

Their original purpose is to help their members in building houses by lending loans to them. Nowadays they also offer most of all the financial services (not much different from banks except they concentrated in specific areas and people(Mason 1976: 128), and their source of funds have also been extended( but most of assets still come from mortgaging (Bain 1992: 178))Credit unions: "A cooperative association organized for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes" (Gup 1980: 150). It is very small in size compared to banks and building societies. It help people who can't obtain credits from banks because neither too expensive nor too difficult to get).2.Non deposit intermediaries:Insurance companies: provide insurances to customers who DO buy insurances when there is damage, lost of property due to a variety of reasons under " agreed conditions when insurances are bought" ( such as there has to be evidence from either the doctor or police in case of theft and damage)Pension: Similar to insurances as people would get pension when they are no longer working.Unit trusts: a form of collective investment constituted under a trust deedFinancial institutions are responsible to channelling money between lenders and borrowers, act as link between the different parts of the financial system, and ease the flow of funds through the financial system. By doing so they would create more attractive instruments for both parties (Mason 1976: 97). They also involved in maturity transformation, encouraging investment, mobilizing saving, transforming risks and reduce transaction cost. (Bain 1992: 10)Maturity transformation: "Provide liquid liabilities which meet the needs of savers whilst employing their funds in the longer term financial instruments which are more convenient for borrowers" (Bain 1992: 11).Mobilizing saving: draw attention to the benefits of saving--> change people's attitudes and raise the level of saving in the economy. (Bain 1992: 10)Direct or indirect investment: either the financial intermediaries would invest themselves or they would gather the comparatively small savings of individuals and make them available in large sums to borrowers (Bain 1992: 10).Average or transform risk: by taking the residual risk of loss on their own equity capital (ex: banks would spread a large number of loans to a variety of activities and ensure that they minimise their risk of overall loss.) (Bain 1992: 11)Information and transaction costs: much lower as financial institution are more specializing so they can finish a job with less effort yet much more effective and therefore reduce the cost (Bain 1992: 12)Financial instruments: "the tokens (piece of paper, entry in a ledger or the equivalent, trade credit ...) that are created and...

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