role of money and financial markets

• Financial sector


  Plays a number of roles for consumers, producers, and government
• 3 main roles of the financial sector

  • Credit provision
  • Liquidity provision
  • Risk management
• Credit provision


  The financial sector "oils the wheels" of the economy, without which the economy gets stuck
• Liquidity provision


  How easy it is to turn an asset into cash, banks are the main providers of liquidity to households and businesses
• Risk management


  The financial sector allows the pooling of risk, which should encourage more savings and investment
• 3 key financial institutions

  • Retail/commercial banks
  • Building societies
  • Insurance companies
• Retail/commercial banks


  Ensure money is used efficiently within an economy, they make money through the difference in interest rates charged to borrowers and paid to savers
• Building societies


  Mutual financial institutions owned by members, their primary objectives are to take deposits from members and lend money for member property purchases
• Insurance companies


  Guarantee compensation for specified loss, damage, illness or death in return for an agreed premium
• Central bank


  At the heart of the banking system, sets the base rate/bank rate that impacts other financial institutions, is the bank for commercial banks and the government
• Money


  Anything that is generally acceptable as a means of payment for goods and services, a medium of exchange
• Bank deposits (current and savings accounts) are money, cheques, debit cards, and credit cards are not money but ways of transferring money
• The financial sector consists of financial organisations and their products, and involves the flow of capital