Financial Institutions-HW Chapter 1-#7
Chapter 1: Questions to help you Study # 7
1) Each function of the financial system is very important to households, businesses, and
governments because they create a need for the money and capital markets through
different flows such as financial services and financial claims and other various funds.
Without a savings and wealth function, our consumption of products and services will be
constrained. Households may have a damper in their consumption opportunities in the
future. Without the liquidity function, savers cannot convert their assets into immediate
spendable cash and could be left in heavy debts. If there was no credit function then
people could not finance current consumption and investment spending by pledging
future income reducing spending opportunities in the future.
Payments function allows everyone to purchase goods and services quickly for
immediate access while paying them back at a later period. The risk protection function
offers businesses, consumers, and governments’ protection against life, health, property,