Written By Hanny Melissa on Tuesday, March 21, 2017 | Tuesday, March 21, 2017

The Financial System is a system that regulates the transfer of funds between excess funds, with those in need of funds in order to achieve efficient allocation of funds, as well as providing financial facilities including payment systems required in financing business activities.

In the financial system that occurs not only the transfer of funds, but also the transfer of risk, especially to the owners, and shareholders. The Financial System also has 3 benefits, including:

1. Financial system can help companies to make the right decision based on cash flow and existing resources, and it is information for the company to be efficient in allocating resources owned.

2. Financial system is needed to monitor funds (compare between expenditure and income), so that the company knows the condition and prospects of its business.

3. The Financial System can ensure that the necessary funds are placed in the right place to complete a production activity.

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Therefore, this financial system is very important. Because without a financial system, the strength and ability of the business sector and households to meet their needs and in investing will be reduced.

Meanwhile, the owners of the excess funds will not be able to optimize the revenue from their excess funds and will make more money that is not used (money idle).

In addition, the Financial System as well has the main task of transferring funds (loanable funds) from savers to borrowers and then used to buy goods and services in addition to investment so that the economy can grow and improve the standard of living, therefore the financial system has a very principle role in the economy and life.

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The financial system in the modern economy has at least seven main functions, including:

1. Savings Function.
  • Financial market systems and financial institutions provide instruments for savings. Bonds, stocks and other money instruments are traded in the money market and capital markets that promise an income and at a low risk to the savings community flowing through financial markets and then used for investment so that goods and services can be produced.
2. Wealth Storage Function.
  • The financial instruments traded in the money and capital markets provide the best way to store wealth, until the funds are needed to spend.
3. Liquidity Function.
  • Wealth deposited in the form of financial instruments can be easily disbursed through financial market mechanisme.
4. Credit Function.
  • Financial markets provide credit to finance consumption and investment needs in the economy.
5. Payment Function.
  • The financial system provides a payment mechanism for the transactions of goods and services. Available payment instruments include checks, demand deposits, credit cards, including clearing mechanisms in the banking system.
6. Risk Function.
  • Financial markets offer businesses and consumers protection for life, health and risks of income or loss. This can be done by selling various insurance policies.
7. Policy Function.
  • Financial markets have become the main instruments that governments can use to implement policies to stabilize the economy and influence inflation through monetary policy.

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