Role of Banks & Capital Markets in Resource Allocation
The Role of Banks and Capital Markets in resource allocation between surplus and deficit units in an economy.
By: Adetokunbo Olu. Aofolaju
Introduction
The issue of how scarce societal resource should be apportioned to different uses has always remained the central focus of economics. Given that the wants of a society are insatiable, the policy thrust of managers of any economy is establishing an appropriate framework for ensuring the deployment of resources to areas of needs that ultimately increases the general wellbeing of the people, which in other words is tantamount to economic growth.
Whether in a free-enterprise economy or centrally planned one, the financial system, made up of all financial markets, instruments, and institutions, provides the mechanism through which a society mobilizes resources to their ‘highest-valued uses’. The system gives the medium of funds channeling from those who do not have immediate need for them (surplus units), to households and firms whose resources are not adequate for the economic activities they intend pursuing (deficit units). How the system performs this task is the focus of this paper.
Resource Allocation Role
• Cost of Information processing.
Making funds available to would be users who need them for productive activities is the central issue under consideration. The question then is would individuals and firms with surplus funds (that is having funds not immediately required for consumption purposes) have the capacity to search out for varied economic agents who do not have adequate funds to pursue value adding projects? The major constraint would be the cost of such exercise! And even where the surplus agents are prepared to bear the cost of the search, granted that technology today has made information gathering and dispersal less tasking, how will the surplus agents consummate an arrangement that will ensure the return of their funds as and when agreed upon? Would they be well informed to analyses fully
By: Adetokunbo Olu. Aofolaju
Introduction
The issue of how scarce societal resource should be apportioned to different uses has always remained the central focus of economics. Given that the wants of a society are insatiable, the policy thrust of managers of any economy is establishing an appropriate framework for ensuring the deployment of resources to areas of needs that ultimately increases the general wellbeing of the people, which in other words is tantamount to economic growth.
Whether in a free-enterprise economy or centrally planned one, the financial system, made up of all financial markets, instruments, and institutions, provides the mechanism through which a society mobilizes resources to their ‘highest-valued uses’. The system gives the medium of funds channeling from those who do not have immediate need for them (surplus units), to households and firms whose resources are not adequate for the economic activities they intend pursuing (deficit units). How the system performs this task is the focus of this paper.
Resource Allocation Role
• Cost of Information processing.
Making funds available to would be users who need them for productive activities is the central issue under consideration. The question then is would individuals and firms with surplus funds (that is having funds not immediately required for consumption purposes) have the capacity to search out for varied economic agents who do not have adequate funds to pursue value adding projects? The major constraint would be the cost of such exercise! And even where the surplus agents are prepared to bear the cost of the search, granted that technology today has made information gathering and dispersal less tasking, how will the surplus agents consummate an arrangement that will ensure the return of their funds as and when agreed upon? Would they be well informed to analyses fully