FINANCIAL SYSTEM

MEANING:
The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. Financial system comprises, a set of sub-systems of financial institutions, financial markets, financial instruments and services which help in the formation of capital The financial system is concerned about money, credit and finance-the three terms are intimately related yet are somewhat different from each other.

STRUCTURE:

FINANCIAL MARKET
A financial market is an organized trading platform for exchanging financial instruments under a regulated framework. The participants of the financial markets are borrowers (issuers of financial instruments or securities), lenders (investors or buyers of financial instruments) and financial intermediaries that facilitate investment in financial instruments or securities. The financial markets comprise two markets : (A) Money markets:caters to short-term demand and supply of funds and is regulated by the Reserve Bank of India (RBI) (B) Capital markets, which are regulated by the Securities Exchange Board of India (SEBI)

FINANCIAL INTERMEDIARIES

 Direct Finance: Funds are flew through institutions that provide brokerage services including investment banking such as Bank of America, and investment brokerage firms etc. They work as a channel of direct financing, in which businesses can raise funds directly from lenders in financial markets especially during initial public offering (IPO). Indirect Finance: Funds are flew through financial intermediaries including depository institutions, financing companies, insurance companies and mutual funds. They work as a channel of indirect financing by pooling saver funds then invest those funds through to businesses that want to spend them. Currently, majority of financing capital are made through indirect finance as securities have been bought primarily by financial intermediaries especially insurance companies, pension funds and mutual funds.

Role/ Functions of Financial System:

It serves as a link between savers and investors. It helps in utilizing the mobilized savings of scattered savers in more efficient and effective manner. It channelises flow of saving into productive investment. It assists in the selection of the projects to be financed and also reviews the performance of such projects periodically. It provides payment mechanism for exchange of goods and services. It provides a mechanism for the transfer of resources across geographic boundaries. It provides a mechanism for managing and controlling the risk involved in mobilizing savings and allocating credit. It promotes the process of capital formation by bringing together the supply of saving and the demand for investible funds. It helps in lowering the cost of transaction and increase returns. Reduce cost motives people to save more. It provides you detailed information to the operators/ players in the market such as individuals, business houses, Governments etc.