A financial system is a system that allows the exchange of funds between financial market participants such as lenders, investors, and borrowers.
Read moreFinancial systems operate at the national and global levels. Financial institutions consist of complex, closely interconnected services, markets, and institutions designed to ensure efficient and regular communication between investors and borrowers.
A financial system is a form of organization of monetary relations between all subjects of the reproducible process of distribution and redistribution of the total social product.
There are mainly four components of a financial system:
Financial markets - the market where buyers and sellers interact with each other and participate in trading bonds, stocks, and other assets are called financial markets.
Financial instruments - the products that are traded on financial markets are called financial instruments. Based on the different requirements and loan applicants, securities on the market also differ from each other.
Financial Institutions - Financial institutions act as an intermediary between investors and borrowers. They provide financial services to participants and customers. They are also called financial intermediaries because they act as intermediaries between depositors and borrowers.
Investor savings are mobilized directly or indirectly through financial markets. They offer services to organizations that want to raise funds from the markets and take care of financial assets (deposits, securities, loans, etc.).
Financial Services - Services provided by asset and liability management companies. They help to obtain the necessary funds and also ensure that they are invested effectively. (e.g. banking services, insurance services, and investment services).
The financial system consists of capital flows that occur between individuals and households (personal finance), governments (public finance), and businesses (corporate finance).
The financial system is also divided into four subsystems:
Public finances are the sphere of monetary relations in which the formation, distribution and redistribution of the value of the gross domestic product and part of the national wealth, the formation and use of public funds for state management, its defense and the satisfaction of domestic needs occur.
Finances of business entities are designed to ensure the activities of the enterprise itself. In turn, the finances of the enterprise form the basis of the country's financial system, since the enterprise creates the largest share of the gross domestic product.
Financial market - represents exchange and redistribution relations that arise in the process of buying and selling financial resources. In market conditions, it coordinates the financial and economic systems, and also connects other areas of the financial system. The basis of the organizational structure of the financial market is the stock exchange.
International finance - is characterized by relations arising between states, international organizations and institutions regarding exchange and redistribution.
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