Commercial banks link parties with excess funds to those with a deficit of funds. They also foster economic growth, underwrite securities, act as monitors and minimize instabilities, according to Franklin Allen and Elena Carletti in "The Oxford Handbook of Banking." Banks are important players in payment systems, reports economist Sanderson Abel for The Herald.Know More
Banks act as intermediaries, bridging depositors with excess funds to borrowers who need the funds, notes Abel. By availing financing to businesses and even governments, banks contribute to economic growth. Depositors benefit from the banking system by having a safe place to keep their money and interest paid to their accounts and from the pooling of risk. Banks act as financial shock absorbers, providing emergency liquidity in the form of credit and overdrafts for many businesses and households.
Maturation transformation of financial instruments is another important role that these financial institutions play. They take short-term deposits and invest in longer-term instruments. By doing so, they buoy financial markets. Banks are often forced to act as informal monitors because they have to constantly check the repayment abilities of borrowers. With electronic funds transfers and remittances to plastic cards, banks are also an important player in global payment systems, reports Abel. They smooth out irregularities in financial markets by providing funds when needed and absorbing them when they are not.Learn more about Economics
A planned or command economy is one in which major functions, such as production and distribution of goods, are controlled by the government. In a planned economy, the government owns some or all production facilities and decides what to produce and how goods are priced. This is in contrast to a market economy, where production and distribution are decided by market forces with little or no government intervention.Full Answer >
A national economy refers to the economy of an entire country. The national economy includes financial resources and management. It encompasses the value of all goods and services manufactured within a nation.Full Answer >
A closed economy refers to an economic system which does not have business relations with any economies outside its own system. Closed economies employ barriers to the trade of goods and services, monies and intellectual property to and from their economic system.Full Answer >
An agrarian economy is a type of economy that relies primarily on agricultural industry including livestock farming or crop production. It is a form of economy whose major factor of production is the agricultural land. Prosperity of agrarian economy is also influenced by other factors such adequate rainfall, suitable climate and inputs like fertilizers.Full Answer >