Role of the Bank in the Financial System

Introduction

This essay discusses the role played by the bank in the financial system. The paper highlights how these roles help to achieve various objectives.

Role of the Bank in the Financial System

A bank is a financial institution that offers financial services to individuals, investors, organizations as well as governments. Banks are licensed to take deposits and lend money to their customers (Smullen 7). Customers who want to save money can take it to a bank as a deposit and they can also access it at a later date upon request. Banks play key roles in the financial markets. Dealing with money is one of the core functions of the bank. It receives money from depositors and can lend this money to borrowers. It is important to note that any firm or company becomes a banking company when its operation is in the banking business. Banks become the custodian of customers’ deposits as well as making customers feel that their money is safe. Another key role banks play is lending money to borrowers in the form of loans who pay back at a given interest rate. Since the Reserve Bank of Australia is the sole supplier of the Australian Dollar, the other banks are involved in the distribution of the currency into the economy through the provision of both payment and withdrawal facilities to its customers. These facilities can be ATM cards, Visa cards, cheques, and drafts. Banks are also involved in managing funds of their customers and paying interest accrued from the investment of the funds. The diversification of the banking business has allowed banks to offer both utility and agency services.

Conclusion

Banks are very important in the economy since they play many roles in money dealing transactions.

References

Smullen, John. Financial Management Information and Analysis for Retail Banks. Cambridge: Woodhead Publishing Ltd, 1995.

Cloye, Brian. Foreign Exchange Markets. Chicago: Dearborn, 2000. Print.