Question

Would economic transactions between suppliers of funds (e.g., households) and users of funds (e.g., corporations) occur in a world without Financial Institutions? Briefly discuss the challenges households would face to manage the transactions in the global financial markets.

Answer 1

The concept of economic transanctions are explained with the context of dual activities related to rendering services of goods and services on behalf of business sectors in one side and paying money to the received goods and services by the households in another side. The rendering of goods and services may be in the many forms like information, parting the money, exchange of item value, etc.

Previously before the advent of monetary system in the society, financial transanctions was not practised. In the absence of the medium of exchange i.e. money, people exchanged the goods with other people by compensating for the same type or different type of need. But this system was only absorbed only with the mutual understanding of the two parties. Under mutual trust of both the parties all goods are exhanged. But the failure of the trust among the two parties posed many problems in the olden days. After introducing the currency as the medium of exchange, the economic transanctions between the households and the corporations will not run without the support of financial institutions.

According to the recent survey reports of the World Bank Group, let us discuss the challenges of households in managing the transanctions in the global financial markets. The normal middle class people in the developing economies have common problems. Not having sufficient awareness among financial products among rural people in the developing countries in African and Asian countries, etc. For example migrants of Moracco and Mozambique in France and Italy were the victims of such financial challenges. Lack of knowledge of social benefits and other monetary support of the government providing for the migrants is the worst situation of not uplifting their own economic development. Migrants of the Srilankan in South India faces same issue in acquiring sufficient financial products. The migrants and other set of people of all developed economies are not able to fulfill the economic needs because of stated reasons above.