Financial System

Financial System – A financial system is a structured network of institutions, markets, instruments, and regulations that facilitates the flow of funds between savers, investors, and borrowers. It plays a crucial role in mobilizing resources, allocating capital efficiently, and supporting economic growth. Key Components of a Financial System: Financial Institutions: Banks, insurance companies, mutual funds, pension funds. Financial Markets: Stock exchanges, bond markets, money markets. Financial Instruments: Stocks, bonds, derivatives, and other investment vehicles. Regulatory Framework: Rules and regulations governing financial activities. Functions: Channel funds from surplus units (savers) to deficit units (borrowers). Facilitate investment, consumption, and economic growth. Provide liquidity, risk management, and price discovery for financial assets.

Example: A company raising capital via the stock market uses the financial system to access funds from investors, which are then utilized for business expansion, generating returns for both the company and the investors