There has been a corresponding explosion in the volume of transactions. In many ways, finance is like any other market, matching demand and supply in this case of loanable or investable funds. By acting as a channel through which savings can finance investment, the financial system helps to spur growth. In doing this, financial institutions can be divided into two broad types. Banks, for instance, take deposits from savers, which they use to make loans to borrowers.
Mutual funds sell units to the public and invest the proceeds in different securities.
The second type of institution is one where savers provide money to firms or governments directly through financial markets. Cheque accounts, credit cards and wire transfers provide means of payment for the exchange of goods and services, and financial assets. Pooling of savings . If the owner of a factory had to rely entirely on his own savings, he would be unable to make large capital investments. Big firms such as GM or IBM could not exist.