key services provided by the financial system (6)

The second informational role the financial system plays involves "communication" of information.If you read a newspaper headline announcing that a pharmaceutical company has found a cure for cancer,how would you determine the effect of this discovery on the company,s financial position?
Financial markets do that job by incorporating information into the prices of stocks and bonds and other financial assets. In this example the expectation of higher future profits would boost the price of the pharmaceutical company.s outstanding stocks and bonds.
Savers and borrowers receive the benefits of information from the financial system by looking at asset returns.As long as financial market participants are informed,the information works its way into asset returns and price.Information is communicated to borrowers as well as to savers.
For example,if the price of the pharmaceutical company,s stock goes up,the company may decide to sell more shares and invest the proceeds in new research projects.The incorporation of available information in asset returns is the distinguishing feature of well-functioning financial markets.