Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 9 The Real Economy in the Long Run
Chapter 26 of 36 Saving, Investment, and the Financial System
Section 9 of 25
…
The financial system consists of various financial institutions that coordinate money flow between savers and borrowers.
Financial institutions are grouped into two categories
1 · financial markets, direct finance, including the bond market and the stock market
2 · financial intermediaries, indirect finance: including banks and mutual funds
…
2 · Financial intermediaries are financial institutions through which savers can make funds available to borrowers.
The term intermediary reflects the role of these institutions positioned between savers and borrowers.
Two of the most important financial intermediaries are banks and mutual funds.
…
Banks
In the case of the owner of a small grocery store who wants to finance an expansion of his business his strategy is different than of large corporations.
A small grocer would be unable to raise funds in the bond and stock markets.
Buyers of stocks and bonds prefer to buy those of large and familiar companies.
The small grocer likely would finance his business expansion with a local bank loan.
…
A primary business of banks is to take in deposits from savers and use these deposits to make loans to borrowers.
Banks pay savers interest on their deposits and charge borrowers a higher interest on their loans.
The difference between these rates of interest pays the banks' costs and creates profit for the bank.
…
Besides acting as financial intermediaries, banks provide a second important function for the economy.
They facilitate goods and services purchases by enabling people to write checks to draw out from their deposits.
Savers use checking accounts as a medium of exchange.
A medium of exchange is something, including cash and checks, people can use for monetary transactions.
A bank's role in providing a medium of exchange distinguishes it from other financial institutions.
Stocks and bonds are a store of value for the wealth people have accumulated by saving.
But access to this wealth for payments is not as convenient and inexpensive (not as “liquid”) as writing checks.
…
small grocery store
chīsana shokuryōhin-ten
小さな食料品店

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