functio preformed by the financial system and the financial markets

the financial system in a modern economy has saver basis function.

1. saving function

financing ACT provides a profitable, low risk outlet for the public saving, which flow through the financial market in to investment so that goods services can be produced and increased society's standard of living.

2. wealth function

wealth is the sum of the values of all assets held by any individuals business firm or government. financial market provides a means to store purchase goods power until needed for future spending on goods and services. wealth can be stored in either purchasing real assets or purchasing financial assets. storing wealth in real assets has more risk associated than that off storing wealth in financial assets because the real assets may exist the loss of assets depreciation etc. the term net wealth is the excess if total value of assets over the total value of debt to be owed. both the net wealth and wealth are built up by a combination of current saving plus income earned on previously accumulated wealth.

3. liquidity function

financial markets provide conversion function for financial securities whenever needed of money with little risk of loss. money consists mainly of deposits held in banks and financial instruments with perfect liquidation. money can be spent without conversion in to some other form. however, money earns the lowest rate of return of all assets traded in financial system and its purchasing power is seriously earned by inflation. that is why savers generally minimize their holdings of money and hold other financial instruments until they really need spendable funds.

4. credit function

credit consists of a loan of funds in return for a promise of future payment. consumers business firms, and government need credit for their own purpose. thus, financial market provides the credit to support consumption and investment spending in economy.

5. payment function

financial market provides a mechanism for making payment for goods and services. checking account, plastic card and other electronic means. serve as a medium of exchange in making payments.

6. risk function

financial markets provides protection to consumers, business and government against risk . this is accomplished by the sale of insurance policies.

7. policy function

financial markets have been the Principal channel through which government has carried out its policy of attempting to stabilize the economy and avoid inflation. by manipulating interest rates and the availability of credit government can affect the borrowing and spending plans of the public, which , in turn influence the growth of jobs. production and prices.