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For financial transactions to happen, money must change hands. How do such
exchanges occur? At any given point in time, some individuals, businesses, and
government agencies have more money than they need for current activities; some
have less than they need. Thus, we need a mechanism to match up savers (those with
surplus money that they’re willing to lend out) with borrowers (those with deficits who
want to borrow money). We could just let borrowers search out savers and negotiate
loans, but the system would be both inefficient and risky. Even if you had a few extra
dollars, would you lend money to a total stranger? If you needed money, would you
want to walk around town looking for someone with a little to spare?