Given the quote at the beginning of Chapter 1: "At its most basic definition, finance is the act of allocating capital to individuals and businesses that want to make productive use of it. In short finance creates social value," discuss how financial institutions provide benefits to individual, businesses, and an economy, giving examples for different types of financial institutions.

Question

Quizplus · Accepted Answer

The Answer is Financial institutions, when they are working well, create social value by providing funds to businesses and individuals that these borrowers in turn can use for productive purposes. Examples include banks providing financing and guidance for small as well as medium sized, and large businesses. This in turn provides a stimulus for economic growth. Banks also provide social value by ensuring a stable and safe payments mechanism and by encouraging savings. Mutual funds provide diversified investments and the means for consumers to save for future goals, such as retirement, dream vacations, college tuition for their children, and other financial needs. Life/Health insurance companies provide protection in the event of adverse events and health coverage payments, and P/L companies provide protection against property damage and liability protection in the event of adverse events. Venture capital firms provide funds for start-ups including new innovations, such as new disruptive technologies to help solve environmental challenges, among other examples.

Given the Quote at the Beginning of Chapter 1: "At