Purpose of the financial system

Purpose of the financial system

       Most of us at one time or another may need more funds than you have on hand for one purpose or another. At the same time, others spend Jess than their incomes. Those who have surplus funds may be willing to let someone else use their savings if they are compensated for doing so.
       The mismatch of income and spending for individuals and organizations / creates an opportunity to trade. The investor can use the funds saved by different classes of people. The investor would be better off by earning a profit from investing funds in a new venture and savers who have lent their money would be better off 'by receiving the return that the investor pays them for lending their funds.
        Now we can easily understand the functions provided by the financial system in an economy. It moves funds from those who want to spend less than they have available to those who have a desire to purchase durable goods or those who have productive investment opportunities. This matching process increases the economy's ability to produce goods and services. In addition, it makes house- holds and businesses better off by allowing them to time purchases according to their needs and desires. A smoothly functioning financial system thus im¬proves the economy's efficiency and people's economic welfare.
       The financial system provides channels to transfer funds from individuals and groups who have saved money to individuals and groups who want to borrow money. Savers (or lenders) are suppliers of funds, providing funds to borrowers in return for promises of repayment of even more funds in the future.