FINANCIAL

SYSTEM
What is financial system?

■ It is the systematic function of financial units or

acts including monetary transactions related to
lending, borrowing, saving and investing that
arise due to demand for and supply of capital
activities on a continuous basis in an economy
Features of financial system

■ Financial system provides an ideal linkage between depositors and

investors, thus encouraging both savings and investments.
■ Financial system facilitates expansion of financial markets over space
and time.
■ Financial system promotes efficient allocation of financial resources for
socially desirable and economically productive purposes.
■ Financial system influences both the quality and the pace of economic
development
Features of financial system

■ It helps in establishing a link between the savers and the investors.

■ Financial system allows ‘asset-liability transformation’. Banks create claims (liabilities)
against themselves when they accept deposits from customers but also create assets
when they provide loans to clients.
■ Economic resources are transferred from one party to another through financial system.
■ The financial system ensures the efficient functioning of the payment mechanism in an
economy. All transactions between the buyers and sellers of goods and services are
effected smoothly because of financial system.
Importance of financial system

■ Facilitate economic/industrial activity and growth.

■ Helps accelerate the volume and rate of savings.
■ Monitors the management of companies.
■ Facilitate execution of monetary policy by the Centarl Bank.
■ Facilitates evalution of assets
Key Componets of Financial System

■ Financial Institutions
■ Financial Markets
■ Financial Services
■ Financial Instruments (Assets or Securities)
What are financial Institutions?

■ Finacial institutions deal with various financial

activities associated with bonds, stocks, loans,
insurance, investment, and many other types of related
functions. With the help of their functions, the
financial institutions transfer money or funds to
various tiers of economy and thus play a significant
role in acting upon the domestic and the international
economy.
What are financial institutions?

■ Finacial institution is that type of an institution, which

performs the collection of funds from private investors
and public investors and utilizes those funds in
financial assets. The functions of financial systems are
not limited to a particular country, instead they have
also become popular in abroad due to the growing
impact of globalization.
Types of Financial Institutions:

■ Commercial banks
■ Stock brokerage firms
■ Credit unions
■ Insurance companies etc.
Commercial banks

■ They accept deposits and provide security and convenience to their customers.
■ Commercial banks also make loans that individuals and businesses use to buy goods or
expand business operations.
■ The commercial bank also deals in basic investment products such as saving accounts
and certificates of deposit.
Brokerages

■ They act as an intermediay between buyers and sellers to facilitate securities

transactions.
■ They are compensated via commission after successful transaction.
■ They also provides investment advise, portfolio management and trade execution.
Credit unions

■ These are not-for-profit financial cooperative associations where large numbers of

people are voluntary associated for saving and borroving purposes.
■ These are established and operated by the members.
■ In a credit union the members pool their saving so that they can provide loan money to
each others.
■ Some of the services offered by the credit unions are online banking, checking accounts,
credit cards, and certificates of deposit.
Insurance companies

■ The insurance company is instrumental as a means of protection of financial losses,

both major as well as small, resulted from damage to the insurer or his or her property.
■ There are a number of insurance policies; however the most important ones are health
insurance, life insurance, home insurance and vehicle insurance.
Financial markets

■ Financial markets are platforms or systems where buyers and sellers

come together to trade financial assets such as stocks, bonds,
commodities, currencies, and derivatives. These markets provide a way
for individuals, businesses, and governments to raise capital, manage
risk, and invest in various financial instruments. Financial markets can be
categorized into different types such as stock markets, bond markets,
commodity markets, and foreign exchange markets. They play a crucial
role in facilitating the flow of funds between investors and borrowers and
are essential for the functioning of the global economy.
Financial services

■ Financial services refer to the products and services offered by financial

institutions such as banks, investment firms, insurance companies, and
other similar entities. These services include a wide range of activities
such as banking, investment management, wealth management,
insurance, and financial planning. Financial services are essential for
individuals and businesses to manage their finances, invest in various
assets, obtain loans and credit, and protect against financial risks. These
services also play a crucial role in facilitating the functioning of financial
markets and the overall economy.
Financial instruments

■ Financial instruments are tradable assets that represent

a financial agreement between two parties. These
instruments can be cash, evidence of an ownership
interest in an entity, or a contractual right to receive or
deliver cash or another financial instrument.
Types of financial instruments
■ Stocks: Represent ownership in a company and can be bought and sold on stock
exchanges.
■ Bonds: Debt securities that represent a loan made by an investor to a borrower
(typically a government or corporation). Bonds pay interest over a specified period and
return the principal amount at maturity.
■ Derivatives: Financial contracts whose value is derived from the performance of an
underlying asset, index, or interest rate. Examples include options, futures, and swaps.
■ Commodities: Raw materials or primary agricultural products that can be bought and
sold, such as gold, oil, and wheat.
■ Foreign exchange (Forex): The trading of one currency for another in the foreign
exchange market.
Thanks for your attention!