Financial System
Financial Management Revision Article
Authors
Many of the financial decisions taken by financial managers are implemented through the financial system of the country or that of globe. The financial system comprises suppliers of finance, users of finance, instruments, intermediaries and the market system that facilitates transactions. The financial system transforms the savings of individuals, business organizations and government into investments. Financial system allocates the investible resources of an economy and therefore its efficient functioning is critical to the economy.
Understanding the structure and procedures of the financial system is essential to financial managers. He has to access the stock and bond markets and negotiate with financial intermediaries for accessing markets as well as for raising loans and bulk investments in securities.
The important issues related to the financial system in any country can be broughtout under the following section headings:
- Functions of the financial system
- Financial assets (instruments)
- Financial markets
- Financial intermediaries
- Regulation
- Financial market returns
- Financial market equilibrium
Functions of the Financial System
1. The payment system is a part of the financial system. It facilitates payment of money in buying and selling of goods through currency as well as through cheques and now credit and debit cards.
2. It enables pooling of money from many individuals and entities for investment in large enterprizes.
3. The funds are transferred across geographies for investment.
4. People can save and invest when they want and get back the purchasing power when they want to consume.
5. The financial system also provides markets for dealing with uncertainty and risk (Hedging facilties).
6. It helps in decentralizing decision making and generates informaton for such decentralized decision making.
To be continued.
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