Question

What are the five major functions of the financial system? In no more than 3-4 sentences discuss the two channels through which development of the financial sector can contribute to economic growth. (2 + 2 = 4 marks).

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Answer 1

Major functions of the Financial system:

1- Provide a financial market for buying and selling of financial Instrument.

2- Provide Liquidity to the system

3- Mobilizes the savings of investors

4- Helps in capital formation

5- Helps in the development of savings and banking habit

Development of a Banking system and a capital market can help in a development of the economy by mobilizing the saving of small investors and provide them a platform where they can park their savings. development of banking system will help in capital formation which will lead to economic growth.

Development of capital market will provide a platform to the corporation to raise funds by the public offer and invite the public to participate in the public offer and provide capital to the private sector.