Monday, January 23, 2012
Accumulating Savings
A function performed by financial institutions is the accumulation or gathering of individual savings. Most individuals, businesses, and organizations do not want to take the risks involved in having cash on hand. Even id cash amounts are relatively small, they are put into a depository institution for safekeeping. When all the deposits are accumulated in one place, they can be used for loans and investments in amounts much larger than any individual depositor could supply. Depository institutions regularly conduct advertising campaigns and other promotional activities to attract deposits.
Transferring Money
Individuals and businesses hold money for purchases or payments they expect to make in the near future. One way to hold money is in checkable deposits at depository institutions. When money is held in this form, payments can easily be made by check. The check is an order to the depository institution to transfer money to the party who received the check. This is a great convenience, since checks can be written for the exact amount of payments, can be safely sent in the mail, and provide a record of payment. Institutions can also transfer funds between accounts electronically, making payments without paper checks. Funds transfer can be made by telephone or at automated teller machines (ATMs) connected to a bank's computer.
Creating Money
Since money is something that is accepted as payment for goods, services, and depts, its value lies in its purchasing power. Money is the most generalized claim to wealth, since it can be exchanged for almost anything else. Most transactions in today's economy involve money, and most would not take place if money were not available.
One of the most significant functions of the monetary system within the financial system is creating money, which serves as a medium of exchange. In the United States, the Federal Reserve System is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions. A sufficient amount of money is essential for economic activity to take place at an efficient rate. Too little money constrains economic growth. Too much money often results in increases in the prices of goods and services.
One of the most significant functions of the monetary system within the financial system is creating money, which serves as a medium of exchange. In the United States, the Federal Reserve System is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions. A sufficient amount of money is essential for economic activity to take place at an efficient rate. Too little money constrains economic growth. Too much money often results in increases in the prices of goods and services.
Financial Functions in the U.S Financial System
In the U.S economy, the government and private financial institutions of many kinds have developed instruments and procedures to perform the financial functions. These financial functions may, in turn, be viewed as characteristics of the financial system that evolved to support the U.S. market economy. The monetary system is responsible for creating and transferring money. Financial institutions efficiently accumulate savings and then lend or invest these savings. Financial institutions play important roles in the savings investment process both through financial intermediation activities and in facilitating direct investments by individuals. Financial markets, along with certain securities firms, are responsible for marketing and transferring financial assets or claims.
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