Tuesday, June 25, 2013

Economic Functions Performed by the Global Financial System

The global financial system has seven basic economic functions.

Saving Function
The global system of financial market and institution provide a channel for public's saving ,the investors,household,financial institution can save their surplus in Stock,Bond or other financial instruments.

Wealth Function
The current built-up of the flow saving fund in Financial asset(Stock,Bond etc.) ,we refer to as wealth. these financial asset is being traded in Capital Market and Money market,which is a good way to store wealth as it carry less risk of loss than the real asset( Vehicle,building) that's subject to depreciation.

Liquidity Function
The global financial financial system provide liquidity(easily convert to cash).because every time investors,household,financial institution need cash,they can sell their financial asset such as Stock or bond etc. immediately in the Financial market ,and there will be other investors,household are ready to buy,so it provide liquidity to the market.

Credit Function
the Global financial system provide the credit function which provide the loan for investment spending to state government and consumption spending for customer who need credit to buy home,groceries,or for the business to construct new building.

Payment Function
The Global financial system provide a way for making payment for purchasing of goods and services Certain financial asset such as currency,  demand deposits, and interest-bearing checking accounts still serve as a popular medium of exchange in making payments all over the globe.

Risk Protection Function
The Global financial system provide individual with risk protection by using insurance policy,Derivative instruments(Options contract,Forwards contracts..)

Policy Function 
The financial markets have been the principal channel  which government has carried out its policy of attempting to stabilize the economy and avoid inflation.

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