The financial function of the financial system has two meanings – mobilize savings and provide liquidity. Financial markets and banking intermediaries can effectively mobilize the savings resources of the whole society or improve the allocation of financial resources. This allows the effective technology of initial investment to be quickly transformed into productivity. While promoting more efficient use of investment opportunities, financial intermediaries can also provide relatively high returns to social savers. The main advantage of financial intermediation mobilization savings is that it can diversify the risk of individual investment projects; secondly, it can provide investors with relatively high returns (relative to physical assets such as durable consumer goods). The mobilization of savings in the financial system can provide a function of aggregation for decentralized social resources, thereby exerting the scale effect of resources.
Stock elaboration function
Divide large-scale investment projects that cannot be divided so that small and medium investors can participate in the investment of these large projects. Through the stock elaboration function, the financial system realizes the monitoring of the manager and the control of the company. In the modern market economy, the company organization has undergone profound changes, that is the high degree of equity decentralization and the professionalization of the company’s operations. The biggest difficulty in such organizational arrangements is the existence of asymmetric information, making it difficult for investors to effectively monitor capital use. The function of the financial system is to provide a new mechanism for the strict supervision of the company, so that the interests of internal investors can be protected.
Resource configuration function
Raising sufficient resources for investment is a necessary condition for economic surging. But investment efficiency, the allocation efficiency of resources is equally important for growth. The allocation of investment has its own difficulties, namely, the productivity risk. The information of the project return is incomplete, and the actual ability of the operator is unknown. These inherent difficulties require us to establish a financial intermediary. In a modern and uncertain society, it is difficult for individual investors to evaluate companies, managers, and market conditions. The advantage of the financial system is that it provides intermediary services for investors and provides a mechanism for sharing risks with investors, making the allocation of social capital more efficient. Investment services provided by intermediary financial institutions can be expressed in the following aspects: firstly, diversification of risks; secondly, liquidity risk management; thirdly, project evaluation.