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Article Junction is an online blog of Sandeep Patil. Here, I share my encounters and experiences of life and would contribute articles on variety of topics; like finance, technology, health, the Internet, mobile, celebrities, etc. I shall also publish review articles on latest movies, documentaries, gadgets, products, services, so on. My attempt is to blog what I have seen, understood and learned.

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Articles published on 'Articles Junction Blog' (AJB) are written and published by Sandeep Patil. This blog is updated and maintained by my co-author and webmaster Manoj Patil. Some articles are also contributed by our guest bloggers on a timely manner. We hope you will enjoy reading our articles. We welcome you to submit your suggestions.

Welcome to Articles Junction Blog, a free information portal on variety of subjects and topics that influenced different aspects of my life.

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Functions of Financial System, Functions of Financial Market

Functions of Financial System, Functions of Financial Market


Functions of Financial System are given in the diagram below.↓

Functions of Financial System

Image credits © Manoj Patil.

Functions and Role of financial system, market are given below. ↓

  1. Pooling of Funds,
  2. Capital Formation,
  3. Facilitates Payment,
  4. Provides Liquidity,
  5. Short and Long Term Needs,
  6. Risk Function,
  7. Better Decisions,
  8. Finances Government Needs,
  9. Economic Development.

Functions of financial system are discussed in brief.↓

1. Pooling of Funds


In a financial system, the Savings of people are transferred from households to business organizations. With these production increases and better goods are manufactured, which increases the standard of living of people.

2. Capital Formation


Business require finance. These are made available through banks, households and different financial institutions. They mobilize savings which leads to Capital Formation.

3. Facilitates Payment


The financial system offers convenient modes of payment for goods and services. New methods of payments like credit cards, debit cards, cheques, etc. facilitates quick and easy transactions.

4. Provides Liquidity


In financial system, liquidity means the ability to convert into cash. The financial market provides the investors the opportunity to liquidate their investments, which are in instruments like shares, debentures, bonds, etc. Price is determined on the daily basis according to the operations of the market force of demand and supply.

5. Short and Long Term Needs


The financial market takes into account the various needs of different individuals and organizations. This facilitates optimum use of finances for productive purposes.

6. Risk Function


The financial markets provide protection against life, health and income risks. Risk Management is an essential component of a growing economy.

7. Better Decisions


Financial Markets provide information about the market and various financial assets. This helps the investors to compare different investment options and choose the best one. It helps in decision making in choosing portfolio allocations of their wealth.

8. Finances Government Needs


Government needs huge amount of money for the development of defense infrastructure. It also requires finance for social welfare activities, public health, education, etc. This is supplied to them by financial markets.

9. Economic Development


India is a mixed economy. The Government intervenes in the financial system to influence macro-economic variables like interest rate or inflation. Thus, credits can be made available to corporate at a cheaper rate. This leads to economic development of the nation.




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