Q1

A financial system is a type of economic structure where financial institutions help

lenders, investors, and borrowers transfer money and assets. Its objective is to
effectively allocate economic resources to foster economic growth and produce
an ROI for market participants.

Flows of Funds through the Financial System: The figure below depicts flow of
fund from lenders-savers to borrowers-spenders through financial intermediaries
(indirect financing) or using direct financing in financial markets

Financial intermediaries

Borrowers-
Lenders-Savers
spenders
Households Financial Government
Firm
markets Households
Government
Firm
Foreigners
Foreigners
 Components of the financial system

1. Financial institutions: Financial institutions play an important role in

bringing lenders and borrowers together. This is accomplished
through the use of a variety of financial instruments and services, all
of which contribute to an efficient financial system.
.
2. Financial markets: These are the place where assets, such as stocks,
bonds, derivatives, and commodities, are exchanged between
borrowers and lenders. It is divided into two categories: money
markets and capital markets. Money markets manage short-term
financial assets (less than a year), whereas capital markets handle
financial assets with maturities of more than a year.

3. Financial instruments: Financial instruments are contracts for the

purchase, sale, creation, modification, or settlement of monetary
assets. During a financial instrument transaction, there is a
contractual responsibility between the parties involved. Loans, credit
guarantees, securities, and bonds are the basic example of financial
instruments

4. Financial service: The term "financial services" refers to the economic

services offered by the financial sector. Financial services enable
investors to manage their assets and give protection against systemic
risk. Because of their unique functions, financial services are an
important component of the financial system.

Importance of each function of the financial system to households,

businesses, and governments.
 Communities are significantly impacted by financial organizations. They
determine the form of our world by controlling the flow of credit in our
economy. This includes our households, businesses, and the government.
The financial institutions lend money to businesses which helps them to
maintain liquidity and generate profit. This boosts corporate activity, and
households gain from increased income. Similarly, financial institutions
such as the Central Bank work to regulate the economy's money supply to
maintain stability and control inflation. The financial institution serves as a
government agent and contributes to the growth of the nation's economy.
For example, to assist an ailing sector, financial institutions may issue a
selective loan line with lower interest rates following government
standards to assist the industry in overcoming its problems

Similarly, the Financial market helps households to get loans they want to
borrow – whether that’s attending university with a student loan, say, or
buying a house with a mortgage. It also provides households with an
institution for saving their money and investing in securities. It also reduces
transaction costs by taking advantage of the economy of scale and by
developing expertise. Similarly, Financial markets offer organizations funds
to recruit, invest, and develop.
Let’s look at this example:
For example, Apple was begun in a garage in California. While it had some
fantastic concepts, it required money to make them a reality. It got a single
investor to lend the business $250,000 in 1977. The company flourished
over time, and less than five years later, it was able to borrow more than
$100 million from financial markets by selling company shares. Apple today
has a market capitalization of hundreds of billions of dollars and employs
over 100,000 employees. So, when they perform well, financial markets can
significantly benefit the country by providing a platform for businesses to
grow which in return benefits households by providing them with jobs and
revenue and also boosts the country’s economic activity.
Likewise, Financial instruments can help to reduce exposure to certain
business risks, such as fluctuations in currency rates, interest rates,
commodity prices, or a combination of these. It reduces the chances of
asymmetric information and improves the efficient allocation of resources.

Correspondingly, Financial services support the growth of enterprises by

providing them with the necessary financial support. Companies use the
loans they issue to finance the acquisition of fixed assets as well as other
forms of capital. Another significant way that the financial services sector
contributes to households is by creating jobs depending on the skill sets.
Finally, the financial services sector serves to diversify the capital market
and takes away the government and central authorities' monopoly on it.
More private company investment is encouraged, and the market as a
whole experiences inventiveness, facilitating growth. Additionally, financial
service also protects the economy from shocks in the event of unexpected
losses.

The world without financial market or financial system

The financial market plays an important role in our daily lives and
enterprises. Without the financial market, people encountered challenges
in the process of money circulation. There will be no secure location to
deposit money and People will find it difficult to keep cash in their hands.
Similarly, obtaining big loans will not be possible and businesses will
struggle to exist in the absence of substantial financial inflow. In the
absence of a financial system, transaction costs would be higher because
there would be no large pool of money and large transactions would be less
likely to occur, so the cost per dollar would be higher and there would be
less chance of economies of scales as it would be difficult for companies to
increase production without enough funds. This will raise the price of things
and reduce people's purchasing power, lowering their standard of living.
Hence, without the financial market, the economy will not be able to grow
at the current rate and there will be issues with the government and
Leakage would eventually occur

Q2
In recent years, Nepal's banking industry has grown significantly, with an
increase in the number of banks and financial institutions. Around 26
commercial banks and more than 70 development banks and financing
firms were active in Nepal as of 2021. In Nepal, the banking industry is
essential to the economy since it offers financial services to citizens,
companies, and the government. The Nepal Rastra Bank (NRB), the nation's
central bank, is in charge of overseeing the nation's banking industry and
preserving the stability of the country's financial system.

The banking industry in Nepal has seen a number of difficulties and

developments recently. These include tougher regulatory obligations to
follow, increasing competition, and the adoption of new technologies.
Despite these difficulties, Nepal's banking industry has largely been steady
and has continued to be crucial to the country's economic growth.

If I am a senior manager of a bank in Nepal:

I think transforming into technology and automation in the banking and the
financial system would bring the greatest impact on the institution. I should
promote digital payments, focus on IT risk management in order to expand
financial access and strengthen the financial system. Nepal Rastra Bank
should also concentrate on this area. Good customer services is very
essential for the bank to build market share, to increase loans, to increase
your assets, to reduce customer complaints; in general to increase overall
bank performance. (reimink)

If I consider my experience as a customer, I constantly run across issues

with customer service. Whether it's employee negligence or extraordinarily
late work. I would like to share one incident I have experienced as a
customer. I had a problem with ATM services. Despite the fact that the
transition was not complete, money was taken from my account. For the
following issue, customer care advised me to go to the bank and fill out the
form. My money didn't return to my account for more than a month. I
made multiple calls to the authorities, but each time they either gave me an
excuse or were quite unpleasant to me. This problem has come up not just
once, but several times, and having to visit the bank frequently is stressful
on top of not receiving the work on time. Time would have been saved if I
could have filled out the form online and addressed my problem. People
may occasionally get sick or some may be disable. It will be a significant
deal for them to often visit the bank for these minor issues. Many faces
these kind of problem in daily basis as bank is mostly used by common
public in Nepal. With the advent of mobile banking and numerous other
digital payment options, life has become considerably easier. Automation
and technological change will lessen that type of issue and save time for
everyone. Though initially investing in technology and automation may be
expensive, doing so will ultimately be tremendously advantageous for
everyone in future

In Nepal, numerous changes are already taking place. You can see that the
system assigns a number to identify your turn in Banks. In addition, you can
identify which department you require assistance from, and vouchers are
distributed accordingly by a machine. We can wait in comfort in our chairs
without having to stand in line. The overall goal of technology in banking:

1. To have applications that allow customers to make transaction or obtain

information on a self service basis without requiring employee efforts.

2. To use technology to reduce the time employees spend on finding

information.

3. To move work through processes fast and effectively by using

automated business rules and decision models.

For instance, workflow processing that is automated gives managers

visibility into the operations being carried out and aids in problem
detection. Additionally, this saves time because it takes time to keep track
of tangible copies. Electronic papers are more secure than hard copies and
are easier to move. In general, procedures become simpler, safer, and more
efficient when they are transformed into digital forms. The processing of
the task that used to take 3–4 days will be finished immediately. These
result in the bank functioning more quickly and efficiently, which boosts the
bank's overall performance. Secondly, shifting focus on under banked areas
and financial access in backward region would bring the greatest impact.
Broad financial market can contribute to better financial performance.
Instead of concentrating on just one specific area, banks should spread out
their branches across the entire nation. The branch banking system
encourages capital mobility, which leads to more interest rate equality.
Funds are transferred from areas with excessive demand for money to
areas deficit demand for money. Therefore, the uniform rate of interest is
in effect. Increased efficiency is attained through large-scale operations as a
result of the small number of customers per branch, which also increases
the number of consumers as more clients are recruited per branch.
(economic research department, 2022)

In conclusion, banking is a commercial activity that entails receiving funds

from the general public in the form of deposits and disbursing them as
loans in order to make a profit. The primary goal of the banking industry is
to expand customer numbers in order to increase profits. To achieve this,
they encourage safekeeping deposits, extend loans, promote capital
development, raise living standards, and deal with currency issues.
(commerce mates ) Adapting to automation and technology will boost
client happiness. By concentrating on branching, the bank will be able to
attract more clients, and more clients equal more revenue. Focusing on
these two issues, in my opinion, will have a significant impact on my
institution.

Contribution Report: :
Our assignment began with the brainstorming on how to do the adequate
research to meet the requirements of question. After analyzing strength
and weakness of our group, we allocated the task according to the strength
of each individual. At first we were discussing about so many information
that we considered important and started to work on the assignment

Sumina Subedi: To begin, I watched various videos on the topic of Nepal's

banking industry in order to obtain a thorough understanding of the
current state of banking in Nepal. Then I read an article by Nepal Rastra
Bank, which provided me with an overview and brief history of Nepal's
banking system. Reading a brief history of the Nepali banking sector, I
discovered what had changed in the past and what needed to be altered
now to assist banking sectors flourish further. The article also assisted me
in comparing Nepal's current banking situation to that of other countries.
This enabled me to compare banking circumstances in other nations to
Nepal.  So, with all of the material acquired, I began working on the project.

Aarzu dangi: I began by reading Chapters 1, 2, 7, 11, and 17 of the textbook

(financial Markets and Institutions- Ninth Edition by Frederic S. Mishkin •
Stanley G. Eakins) offered by Help University. It aided me in gaining a better
understanding of financial markets and their significance in the economy.
Then I used research papers, articles, websites, and newspapers available
on the internet to broaden my understanding of the components of the
financial market and how they affect our lives. I allocated all the necessary
resources and got to work on my project.

Laxanda: I conducted extensive study on the state of the nepali banking and
financial system before the rest of the group got started on this
assignment. which allowed us to learn what Nepal's banking and financing
agencies actually lacked. After that, we quickly mind-mapped the several
forms of improvement needed for Nepal's financial sector to match
expectations for the twenty-first century. It helped us understand what
effects automation and technological change might have on this
organization. We also discovered a great deal of additional elements that
must be taken into consideration in order to improve these institutions.
Finally, we examined all the necessary developments and their potential
benefits for Nepal's banking and financial sector.
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