The Role of Banks in the Economy

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The Role Of Banks In The Economy

Karyna Golovchenko group 16

The health of the economy is closely related to the soundness of its banking system. As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner. They provide specialized financial services, which reduces the cost of obtaining information about both savings and borrowing opportunities. These financial services help to make the overall economy more efficient. Furthermore, banks are essential for each country’s economy, since no growth can be achieved unless savings are efficiently channeled into investment. Loan facility provided by banks works as an incentive to the producer to increase the production. They provide loans and corporate bonds to the households and small or medium enterprises to run their businesses. Additionally, nowadays many difficulties in the international payments have been overcome and the volume of transactions has been increased. Banks also play an important role in economy when they are involved in the process of government securities’ issue. Besides, various services and products offered by commercial banks such as car leasing, mortgage financing, credit cards provide easy accessibility of funds to the customers. Hence a great deal of money circulating in the economy is contributed by commercial banks. Banks are also an important element in implementing the monetary and fiscal policy by the central bank. When a central bank decides to introduce concretionary monetary policy, commercial banks have to increase their interest rates to comply with the central bank. Therefore banks play an important role in bringing economic development in a country. To put everything in a nutshell banks provide such activities in each country’s economy:...
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