banks and other financial institutions lack relevance in the modern economy because they focus primarily on financial assets and generally do not engage in real investment activity. True/False

Question

Business

Koen Trevino

21 October, 18:45

banks and other financial institutions lack relevance in the modern economy because they focus primarily on financial assets and generally do not engage in real investment activity. True/False

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Answers (1)

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Chanel Guerra · Answer 1

False.

Explanation:

Banks and other financial institutes have been monumental in the emergence of the modern economic system. The main purpose of the financial institutes is not only to deal with the financial assets, but to connect savers (people who have excess capital) with borrowers (people who are in need of capital). This capital is in turn used by businesses and individual to build assets and establish new businesses. These are the real investments activities.

This can be understood from the example of stock exchange, a very fundamental financial institute, involved in bringing the savers (investors) and borrowers (companies in need of capital) under one platform to increase the investment activities in any society.