Financial system
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A financial system (within the scope of finance) is a system that allows the exchange of funds between lenders, investors, and borrowers. Financial systems operate at national, global, and firm-specific levels.[1] They consist of complex, closely-related services, markets, and institutions used to provide an efficient and regular linkage between investors and depositors.[2]
Money, credit, and finance are used as media of exchange in financial systems. They serve as a medium of known value for which goods and services can be exchanged as an alternative to bartering.[3] A modern financial system may include banks (operated by the government or private sector), financial markets, financial instruments, and financial services. Financial systems allow funds to be allocated, invested, or moved between economic sectors. They enable individuals and companies to share the associated risks.[4]
The Components of a Financial market
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Financial institutions
Financial institutions provide financial services for members and clients. They are typically regulated heavily, as they provide market stability and consumer protection. Financial institutions include:[citation needed]
- Public banks
- Commercial banks
- Central banks
- Cooperative banks
- State-managed cooperative banks
- State-managed land development banks
Non-bank financial institutions
Non-bank financial institutions facilitate financial services like investment, risk pooling, and market brokering. They generally do not have full banking licenses or are not supervised by a bank regulation agency.[5] Non-bank financial institutions include:[6]
- Casinos and cardrooms
- Finance and loan companies
- Insurance companies
- Mutual funds
- Commodity traders
Financial markets
Financial markets are markets in which securities, commodities, and fungible items are traded at costs representing supply and demand. The term "market" typically means the aggregate of possible buyers and sellers of such items.
Primary markets
The primary market is used for new issues or financial claims. Financial instruments such as stocks and bonds are often sold through primary markets.
Secondary markets
The secondary market is the market in which financial instruments that have been issued previously are sold.
Financial instruments
Financial instruments are tradable assets of any kind. They include money, evidence of ownership interest in an entity, and contracts.[7]
Cash instruments
A cash instrument's value is determined directly by markets. They may include securities, loans, and deposits.
Derivative instruments
The value of derivative instruments is variable and derived from one or more underlying entity (including an asset, index, or interest rate).[8]
Financial services
Financial services are offered by a large number of business that encompass the finance industry. These include credit unions, banks, credit card companies, insurance companies, stock brokerages, and investment funds.
Banking
Lua error in package.lua at line 80: module 'strict' not found.Banks are financial intermediaries that lend money to borrowers to generate revenue. They are often regulated heavily as a result of their importance in the financial system and the number of risks they face.
See also
References
- ↑ Lua error in package.lua at line 80: module 'strict' not found.
- ↑ Gurusamy, S. (2008). Financial Services and Systems 2nd edition, p. 3. Tata McGraw-Hill Education. ISBN 0-07-015335-3
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