Functions of the financial sector

Question 1

A safe haven for savings (4)

Answer 1

-It attracts finds for business and private individuals.
-Firms and individuals with extra funds are encouraged to save in the financial institutions. -It provides people with an alternative place to put their extra funds.
- It makes savings attractive by paying interest on the sum saved and making the funds secure

Question 2

It provides the govt with a source of funds for investment purposes

Answer 2

Banks use the funds deposited with them to purchase treasury bills and treasury bonds issued by the govt. This constitutes a loan to the govt

Question 3

It provides private individuals with a source of funds for investment OR

Answer 3

private individuals can borrow from financial institutions to buy homes and cars or start up a business

Question 4

It provides the private sector with a source of funds for investment purposes

Answer 4

-Financial institutions purchase or facilitate the purchases of corporate bonds and company shares.
-The purchase of corporate bonds provides loans to business while the purchase of company shares provides equity capital to businesses (the capital collected by a company from its owners and other shareholders in exchange for a portion of ownership in the company)

Question 5

It allows the private sector and private individuals..

Answer 5

the opportunity for part ownership of companies.
-Through the purchase of company shares, private individuals are part owners of companies

Question 6

Explain the concept of the informal sector

Answer 6

That part of the economy where economic activities are not under official control.
-Caribbean economies have very large informal sectors.
-Production in this sector is not considered in the computation of national income statistics.
-Income earners in this sector do not pay taxes

Question 7

What does the informal sector provide?

Answer 7

The informal sector provides jobs and reduces unemployment, but in many cases the jobs are low-paid and there is no job security. This sector facilitates the growth of entrepreneurial activity among the lower income groups.. Eg moneylenders, pawnbrokers, rotating savings(sou sou).

Question 8

list 5 functions

Answer 8

• Provides the govt with a source of funds for investment purposes
• provides private individuals with a source of funds for investments
• priv individuals can borrow from financial institutions to buy homes etc.
• provides priv sector with a source of funds for investment purposes (corp bonds/company shares)
• allows the priv sector and priv individuals the opportunity for part ownership of companies. Through the purchase of comany shares