What is the financial system?

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Finance is a popular term that means the exchange of money or amount between the financial system and the participants. A participant includes a lender (who invest the amount in the financial system for purpose of getting interest) and a borrower (who borrows the money from the financier). The finance system is working at a national level and global level. The main source for the financial system is the money. Money is the ultimate thing in the world. Money circulates all around the world. Fund, interests, finance are the main theme in the financial system. Finance system allows the usage and exchange of money.

What are the components of a financial system?

There are four main components in the financial system includes financial markets, financial assets, financial institutions, financial services. Let us see one by one.

  1. Financial markets. It is the place where the consumers and the financier can interact with each other. It is the necessary place where people can make a lot of contacts with each other. A financial market plays a major role in the development of our economy because money is the ultimate thing we required in the world. Without money we cannot survive in the world. Everyone needs money to satisfy their needs.
  2. Financial assets. Here the things which are to be commercialized in the finance markets are known as financial assets. Mostly money is the thing which we invested in the financial markets. Based on their people’s choice the products may vary from a place to place.
  3. Financial institutions, it is a place which acts as an intermediate between the borrower’s and investors. It also acts as an important medium for the fund transport. If there are no financial institutions then there is no circulation of money all around the world. Hence financial institutions are also known as amount circulating institute.
  4. Financial services, there are lot of financial services exists such as bank services. Through which people can borrow money. Those peoples working here are very sincere. These four major components act as a pillar in the financial system. Without the pillar a building cannot exist. For the strong building, we need to have a strong pillar.

What are the basic types of finance systema?

There are two main basic finance systems namely public and private systems.
The public finance system is the place where it deals with the public authority. It includes the area of banks in the major public areas. Most of the business man can buy a loan from the public authorities. For those business men these public authorities are very helpful to them.
A private finance system deals with an individual point of view rather than a group of peoples. It includes savings, income, spending, investment, protection. All these five factors are very basic and these are necessarily needed for the private sectors. Apart from these two sectors there are many others finance sectors but these public and private systems are major needs for the development of our economy.

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