Financial System is a broader term which brings under its fold the financial markets and the financial institutions which support the system. The responsibility of the financial system is to mobilize the savings in the form of money and monetary assets and invest them to productive ventures. An efficient functioning of financial system facilitates free flow of funds and promotes investments. Thus financial system provides savers and investors to promote faster economic development.
Functions of Financial System to support the financial institutions:
1. More liquidation:- Money and Monetary assets are referred to as a liquidity. The responsibility of developing sound financial system by strengthening the institutional structure and by promoting saving and investments in the country.
2. Mobilization of savings:- The financial institution facilitates the transformation of savings into investment and consumption. Thus financial system should be appropriate to attract savings and available for more productive ventures.
3. Size transformation function:- Banks and other financial institutions performs the size of transformation function by collecting and deposit from majority of small customers and giving them loan of sizeable quantity.
4. Maturity Transformation functions: – The financial institution accepts deposits from public in different maturities according to their liquidity and lends them to borrowers in different maturities according to their needs and promotes economic activities of the country.
5. Risk transformation function:- The risk transformation function promotes industrial development, various risk tools are available in financial system like hedging, insurance etc.
Author: Lokesh Agarwal