Financial Institutions-HW Chapter 1-#6
Chapter 1: Questions to help you Study # 6
6) There are seven vital functions that the financial system of money and capital markets
perform, which are the savings, wealth, liquidity, credit, payments, risk protection, and
policy functions. Savings functions are bonds, stocks, and other financial claims
produced and sold in financial markets by financial institutions that provide a profitable,
relatively low-risk outlet for the public’s savings. Wealth function is the sum of the
values of all assets we hold at any point in time for any individual, business firm, or
government. Liquidity function is for savers who hold financial instruments but are in
need of money. Liquidity is immediate spendable cash. Credit function is a loan of
funds in return for a promise of future payment.
Payments functions are the use of checks, debit cards, and credit cards. These are
in the form of digital cash where individuals can buy items now without any actual cash
and pay later on when the bill is mailed to them. Risk protection function is where