A 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.
Financial 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).
A 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).
A 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.
Financial services 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.
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