ACCA Advanced Financial Management (AFM) Practice Exam

What services do financial institutions collectively provide?

1. Only investment advisory services

2. Payment services, borrowing and lending, pooling risks

3. Insurance and real estate management

4. Property management and marketing services

The correct answer is: Payment services, borrowing and lending, pooling risks

Financial institutions play a crucial role in the economy by offering a wide range of services that cater to individual and business needs. The correct answer highlights several key functions carried out by these institutions: payment services, borrowing and lending, and pooling risks. Payment services refer to the facilitation of transactions between individuals and businesses, allowing for smooth exchanges of goods and services. This includes electronic funds transfers, credit and debit card services, and other mechanisms that enable efficient payment systems. Borrowing and lending are fundamental to the operation of financial institutions. They collect deposits from savers and use these funds to provide loans to individuals and businesses, which helps stimulate economic activity and supports consumption and investment. Pooling risks is another critical service offered by financial institutions, particularly in the insurance sector. This involves gathering a large number of policyholders to spread out the risk of loss, making individual contributions more manageable and ensuring that individuals are protected against significant financial hardships. These collective services provided by financial institutions not only support the functioning of the financial markets but also enhance economic stability and growth. The other choices do not encompass the breadth of services offered by financial institutions, as they either focus on specific areas or fail to capture the comprehensive nature of the functions performed by these entities.