1. The Functions of the Financial System
a. explain the main functions of the financial system;
What are six functions of the financial system?
1. Save money for the future
2. Borrow money for current use
3. Raise equity capital
4. Manage risks
5. Exchange assets for immediate and future deliveries
6. Trade on information
What are information-motivated traders?
Information-motivated traders can (or they believe they can) use the financial system to earn a return in excess of the fair rate of return because they have information whose value declines over time (as it becomes recognized by other market participants).