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The main functions of a financial system

2.    providing the means of payment

responsibility oftaking deposits clearing systems

3.    providing payment facilities

•    a variety of services such as insurance, pensions and foreign exchange

•    facilities that allow people to adjust their exisfing weaith portfolios

Aversion to risk

•    lt’s better to pay to avoid uncertainty

•    lt’s better to avoid a loss

•    The area of insurance companies

•    Certainty of reduced income vs. avoiding loss of income or weaith

•    Pension funds, unit trusts, investment trusts - accumulate a diversified asset portfolio

What a financial system does

•    Channels funds from lenders to borrowers

•    Creates liquidity and money

•    Provides a payments mechanism

•    Provides financial services such as insurance and pensions

•    Offers portfolio adjustment facilities

•    Makes borrowing and lending cheap and easy ->increases investments and economic growth

The development of a financial system

•    Increase in complexity of factors and means influencing the major financial decisions

•    Assymetric information

•    worse for consumers than suppliers

•    drives increase in the scope of regulations

•    the growth of financial advisory