According to Merton (1995), financial systems perform six functions.The flow-of-funds function is:
A)to provide the means for the settlement of commercial transactions
B)the exchange of funds for a period requiring the user to compensate the supplier for the use of their funds
C)to provide ways for participants in the financial system to transfer and manage risk
D)to overcome information asymmetry
E)to provide ways of dealing with the incentive problems that arise in financial contracting.

Question

Quizplus · Accepted Answer

The flow-of-funds function refers to the exchange of funds for a period, during which the user compensates the supplier for the use of their funds. This function is essential for the operation of financial systems, facilitating the movement of money from those who have it to those who need it for investment or consumption purposes.

According to Merton (1995), Financial Systems Perform Six Functions