What is the role of banks in the financial system?

The role of banks in the financial system is primarily to facilitate the lending and borrowing of money. This function is crucial as it allows individuals, businesses, and governments to access funds needed for various purposes, such as purchasing homes, expanding businesses, and investing in public projects. Through accepting deposits from savers and providing loans to borrowers, banks effectively bridge the gap between those who have surplus funds and those who need capital.

By performing this intermediary role, banks contribute to the overall liquidity in the economy, promote economic growth, and enhance the efficiency of capital allocation. This strengthens the financial system as a whole, allowing for stability and fostering consumer and business confidence.

The other options present narrower or incorrectly focused functions of banks that do not encompass the broader role that banks play in financial intermediation and systemic stability. For instance, while some banks may engage in stock trading or provide credit cards and specialized foreign exchange services, these activities are not their primary function within the financial system. Thus, the correct answer underscores the essential role of banks in facilitating monetary transactions and supporting economic activity.