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Importance of Financial System Roles

The financial system plays an important role by facilitating the flow of funds between parties, providing mechanisms for transaction settlement, generating and sharing information with investors, enabling risk transfer and management, and addressing incentive problems. An effective financial system is crucial as it allows for efficient allocation of resources in the economy.

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Mangala Prasetia
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4 views1 page

Importance of Financial System Roles

The financial system plays an important role by facilitating the flow of funds between parties, providing mechanisms for transaction settlement, generating and sharing information with investors, enabling risk transfer and management, and addressing incentive problems. An effective financial system is crucial as it allows for efficient allocation of resources in the economy.

Uploaded by

Mangala Prasetia
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Week 1: Overview of financial system

Explain the role of the financial system and why it is important


The roles of the financial system are:
1. To facilitate the flow of funds
2. To provide the mechanism to settle transactions (payments system e.g. cash, EFTPOS, credit
card. A strong payments system is efficient in terms of speed, cost, and stability).
3. To generate and disseminate information
(provide investors with information useful for decision making)
4. To provide the means to transfer and manage risk
5. To provide ways of dealing with incentive problems (e.g. information asymmetry, adverse
selection, moral hazard, agency problem).
It is important to have an effective and efficient financial system as this will:

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