News The Structure of Financial System

The Structure of Financial System

-

THE STRUCTURE OF FINANCIAL SYSTEM

The financial system is the backbone of an economy. Every economic activity in the country is dependent upon its financial system. The constituents of the financial system of a country are:

  • Financial institutions (specialized and non specialized) ;
  • Financial markets (organized and unorganized);
  • Financial instruments and financial services;
  • Procedures and practices adopted in the markets; and
  • Financial interrelationships

The financial system of a country is concerned with three basic things – Money, Credit, and Finance. ‘Money’ refers to the prevalent medium of exchange or the means of payment. ‘Credit’ implies the sum of money that is to be returned along with it the interest accrued. ‘Finance’ includes the monetary resources comprising debt and ownership funds of government, company, or a person.

Financial Institutions

These are the organizations which mobilize and deposit the savings, and supply credit or finance. These also provide various types of financial services.

Classification of financial institutions:

  1. Banking and non-banking financial institutions: Banking institutions are active participants in the economy’s payment system; their deposits constitute of a major part of the national money supply; and they can create money through deposits and credit. These features are not present in non-banking financial institutions.
  2. Intermediaries and non-intermediaries: Intermediaries act between savers and investors; they lend money and mobilize savings; their liabilities are towards the savers. On the other hand, their assets arise when they lend money.

Financial Markets

These are the centers or arrangements where buying and selling of financial claims and services takes place. Companies, financial institutions, individuals, and governments are the participants in these markets either directly or indirectly through brokers and dealers.

Classification of financial markets:

  1. Primary and secondary markets: In the primary market, the purchase and sale of a particular security is done for the first time. It is also known as the new issue market. Secondary markets deal in the securities that have been issued in the primary market before they enter the secondary market.
  2. Money and capital markets: Money markets deal in instruments which have short term maturity (up to one year). On the other hand, capital markets deal in securities which have maturity of over one year.

Financial Instruments

Financial instruments are the assets that have a monetary value and act as an evidence of the ownership of the underlying asset. They may also serve as contractual rights to accept or deliver the cash or any other financial instrument.

Classification of financial instruments

  1. Primary or direct:Investors issue the primary securities directly to the savers in the form of shares and debentures.
  2. Secondary or indirect:These securities are issued by the financial intermediaries to the ultimate savers as bank deposits, units, insurance policies, etc.
The Structure of Financial System
General Contributor
Janice is a writer from Chicago, IL. She created the "simple living as told by me" newsletter with more than 12,000 subscribers about Living Better and is a founder of Seekyt.

Latest news

Japanese Owl Meaning and Symbolism

If you're wondering about the Japanese owl meaning and symbolism in Asian cultures, the Owl, along with Maneki Neko...

What Are the Signs of Depression in Women

Gender and depression have long been the scope of research in the field of emotional disorders; most authors believe...

Top 7 Superfoods for Men to Stay Young

Superfoods are generally regarded as targeted foods that provide the maximum nutritional benefit - thus these foods are nutritionally-dense...

Best Brain foods for Kids – Boost Brain Power and Keep Sharp

A child's brain is developing rapidly and if you want them to improve their performance in school and their...

7 of the Best Brain Foods for Studying

The foods that you eat can improve the functioning of your brain. Just like drugs, foods have amino acids,...

B12 Shots for Dogs – 10 Key Benefits

The end of 2010, my little dog -- a 7-pound Papillon -- became very stressed after a flood in...

Must read

What to Buy for Baby When Layering Baby Clothes

Spring time is one of those times of...

Solar light bulb

This idea developed by Nokero, a Hong Kong...
- Advertisement -

You might also likeRELATED
Recommended to you