The Monetary System

The Monetary System

The United States financial system was created to maintain a balance between the money supply and economic activity. In the financial system there are three main parts of the financial system. Each part plays a role in transferring wealth among individuals, businesses, and the government. The financial system maintain a balance of economic activity as long as the measure of wealth, the physical money, a way of producing money, and a way of transferring it is accepted by the United States citizens.

Money is transferred from savers to businesses three different ways. In the savings-investment process individuals can purchase securities and stocks directly from a business. This type of transfer does not require the use of a financial institution. This process involves only the saver and the business. The second type of transfer is an indirect transfer, which is the most common. It involves a saver and a banking firm. The saver put the banking firm in charge of purchasing the securities for them. The banking firm purchases the securities from the businesses and resells them to the savers. The banking firms are mediators between the savers and the businesses. In the third type of savings-investment, the saver deposits money into a financial institution. The financial institution, such as a bank, gives the depositor its own security. This type of security could be something like a certificate of deposit or CD. The financial institution then loans those funds out to a business. This type of transaction makes financial institutions very important in the monetary system.

Depository institutions are important for various reasons. It main purpose is to facilitate the transfer of money from business and individuals. Although there are many types of financial institutions, they work similar. The financial institution regulates the supply of money and transfers money throughout accounts through check processing. It includes taking money from depositors...