financial system allows transfer of cash between people who invest and people
who borrow. The system can be
international, organization or international level. In financial system, the word system shows a
group of closely joined institutions, procedures, markets, agents, transactions
liabilities and claims in an economy.
The Five basic components of financial system are financial markets,
services, instruments, Institutions and money.
institutions help the investors and borrowers to meet by facilitating smooth
work of the financial system. Via financial markets, they help to mobilize the
savings of investors directly or indirectly by utilizing different financial
instruments also in the process by use of services of numerous financial
providers. The can be in regulatory, non-
intermediaries and intermediaries among others. They advise institutions which
are looking for advises on various problems which include restructuring and
diversification of strategies. They give services to institutions which want to
raise funds from markets and watch over the assets of finance for example
securities and loans e.t.c. McDaniel, C. D. (2009).
financial market is a location where assets are transferred or created and can
be put into capital and money markets. The financial assets whose maturity
period is more than one year are taken care by the capital market whereas money
market takes care of short-term financial assets which have a maturity period of less than an year.
The main functions are; location and creation of liquidity and credit, act as
intermediaries for mobilizing savings, help to get a balance in economic growth
and give convenience of finances. They can
also be classified as primary and
secondary markets. Primary markets takes care of issues of securities that are coming up while the
secondary markets takes care of the existing securities issues that are available in the stock market. Financial
markets attract investors’ attention and enable the companies to finance their
operations and grow. Money markets
enable businesses to access funds on a basis of short term. Capital markets
enable long- term funds to help in expansion. Intermediaries like banks help borrowers
by lending them and they also take deposits from investors and lend it to the
people who need loans. Gitman, L. J.(2009).
financial instrument is a component of financial system that is important. In financial
market, the products that are traded are securities, financial assets and any
other financial instrument. The needs of investors and credit seekers are different
and there is a wide range of securities.
comprises of services given by Asset management and Liability management Institutions.
They assist in getting the necessary money and are deployed efficiently. They help
to know the financing combination and they push their professional
services to the servicing of lenders stage.
They assist to borrow, purchase
and sell securities, lend and invest, make and allow payments and settlements
and take care of risk exposure in financial market. The financial services section gives a number of
professional services for example venture capital financing, mutual funds
credit rating, merchant banking book, building and deposit services. Gaspar,
J. E. (2006).
Gaspar, J. E. (2006). Introduction to business.
Boston, MA: Houghton Mifflin Co.
Gitman, L. J., & McDaniel, C. D. (2009). The future
of business: The essentials. Mason, OH: South-Western Cenage Learning.