Saturday, April 18, 2009

key services provided by the financial system (1)

the financial system provides three key services to savers and borrowers : risk sharing , liquidity ,and information .Savers and borrowers value these services in part because the financial system provides them in different ways to meet varying individual needs . Availability of these services helps explain many of the financial actions of households and businesses.
Risk Sharing
your brother-in-law asks you to invest all your savings in shares of stock in his company . You now that is a risky proposition. If the economy booms, sales of the product-glow-in-the-dark earrings-might make you rich. But if the economy sours,those earrings might not be such a great product.You would like to invest in the business,but you,re not convinced that you should tie up all your savings in such an investment.Are you being too cautious?

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