Question

Discuss the function of financial institutions and financial markets?

( please explain in simple words)

Answer 1

Financial Institution and financial markets, they both play a significant role in the allocation of resources (money) from the one who is saving to the one who needs money to invest. Financial institutions mainly consist of banks, Non-banking financial companies, stock exchanges e.t.c while financial market is a term that is used to describe a virtual or real place where a large number of buyer or sellers interact with each other.

The key functions of financial institutions and Finacial markets are :

• They act as an intermediary between the buyers and sellers and charge commission for that.
• They also provide liquidity to these market by buying and selling instruments.
• They acts as an institution where retail customers can deposit their funds like banks and get return on that.
• They constantly keep bringing innovation in financial product.
• Financial market provides a platform where buyers and sellers can complete their transaction.
• The transaction occuring on the platform are regulated by different regulator, so it brings a certain level of safety in the process.
• They both act as a channel where the one who saves the money and the one who needs money to invest can interact with each other.
• Financial institution and financial markets play a significant role in the funding of long term infrastructure project.
• They both contribute immensely to the overall growth of an economy.