Introduction to Financial Markets and Institutions
There are certain types of financial markets and financial institutions that are found in almost every country in the world. For instance, most countries where economic activities take place have an established stock exchange and a banking system. Each of these institutions is different and hence perform different functions. However, together, these financial markets and institutions make up a financial system. Financial systems all over the world are similar to some extent since all of them tend to have some common features. However, financial systems also tend to have unique features based on political, economic, and even cultural factors.
In this article, we will have a basic look at the fundamental features of the financial system.
What is a Financial System?
A financial system is a complex, interrelated arrangement of financial institutions and markets. In order to understand the system as a whole, we first need to understand its component parts. The financial systems across the world are generally known to have three components. These components are as follows:
How the Financial System Works?
A wide variety of motives are at play in the financial system of any country. The three types of institutions mentioned above have very different incentives.
Therefore, it can be said that a financial system is formed with many different types of parties. These different types of parties have different needs. These different needs, as well as the contribution of the different parties to the overall financial system, have been summarized above.
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