Functions of Financial System

Financial system in today’s world is perhaps the most important system among all the systems as all the economics of the world have become interlinked it has become a very complex system. The financial system in it includes all whether its banks or stock market or financial institutions. Let’s see some of the important functions which are performed by the financial system –

1. The first and foremost function which financial system perform is the channelization the savings of individuals and making it available for various borrowers which are the companies which take loan in order to increase the production of goods and services, which in turn increases the overall growth of the economy.

2. It is with the help of financial system that one can make payment whenever and wherever he or she wants with the help of checks, credit card and debit card. In the absence of financial system one has to take cash wherever he or she goes which would have been impossible.

3. Financial system also provide an individual various options when it comes to protecting against various risks like risk arising from accidents, health related, etc… through various life insurance options.

4. Financial system also makes sure that one can liquidate his or her savings whenever he or she wants it and therefore individuals can have both the things, which involve return on investments as well as comfort that they can liquidate their investments whenever they want.

5. All transactions whether they involve individual buying house or a big company coming with an initial public offer they are effected smoothly because of financial system.

4 comments… add one
  • Teshome Eshetu

    Do you think that these are all about the functions of financial system? What about the policy function? what about the wealth function? what about credit fuction?


    • Vinish

      As far as credit function is concerned i have already mentioned it in the point number 2 and about other points, they all are functions of financial system. Since financial system has many functions it is not possible to cover all of them in one post and that is why they have not be mentioned in the above points. Thanks for leaving your valuable comment, i will be covering other functions of financial system in my future post.

  • pk

    An organisation work much better if it has enough fund when it required. It will porduce more efficiently and effectively when it has enough fund.
    A household run his or her home well if he or she has ehough fund when it required.
    A government work much better if it has enough fund when it required.

    As like a good water supply system, which porvides pipelines at required places to full fill the water requirement without any dealy on need.
    Like wise A good financial system porvides perfect channels(In form of bank, financial institution,security market etc.) though which surplus fund in the hand of persons are suppled to appropriate person i(eg. organisation who needs fund to operate its business smoothly, government in order to undertake big project, individual to fulfill personal need etc.)in need.
    Growth of an economic is majorly dependent upon the financial system of that country.
    in short, a good financial system guarantee:

    *availability of fund to those who is in need.


    *better economic growth…………………………………..Thanks.

  • porwenomics

    Thanks alot for the good work keep it up.pls hw can i get ur latest post on this topic.thanks

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