Monday, April 20, 2009

the Financial System and the economy(3)

The reason that savers and borrowers use the financial system is that each gets something in return: Borrowers can use savers, funds productively until the savers
themselves need the fund. and borrowers are willing to pay savers for that privilege
privilege.moreover. the financial system provides three key financial services ; risk
sharing.liquidity.and information.risk refers to the degree of uncertainty of an asset,s ,s return.Most of us do not gamble with our saving,seeking a relatively steady return on our assets as a whole. When we borrow we also want the cost of borrowing to be predictable. The financial system provides risk sharing by giving savers and borrowers ways to reduce the uncertainty to which they are exposed.
Second,most people care about how easily they can exchange their assets for cash,a feature known as "liquidity".For example,if you used all your savings to buy a plot of land in Arizona,you might find it difficult to sell it quickly if you need money to fix your car or pay your tuition. The financial system enables people to hold assets in liquid from,such as checking accounts,stocks,or bonds.
Finally,the financial system plays an important role in gathering and communicating information about borrowers,circumstances,so that individual savers do not have to search out prospective borrowers. The financial system provides this information to make sure that funds are allocated efficiently.
An understanding of these three key services helps explain how the financial system has developed and how it will likely change in the future. Changes in financial system may well affect your opportunities to save or borrow,or even your career choices. The financial system matches savers and borrowers and provides risk-sharing,liquidity,and information services through two channels: financial markets financial institutions. In this chapter we merely sketch the features of these two channels. We present a more complete picture of the financial system throughout the rest of this book.
The financial system is a relatively small but important source of jobs and income for the U.S. economy. the financial system accounts for about 6% of all private employment in the United States and more than 7% of total employee compensation. In addition, jobs in the financial services sector pay relatively well.At 122% of the national average,the pay is better than the average in wholesale and retail trade, manufacturing,agriculture,mining,construction,and government.

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