Financial System is a mechanism that works for investors and
people/Companies who want finance.
Financial System is a composition of various institutions, markets, regulations and laws, practices, money managers, analysts, transactions and claims and liabilities.
The system consists of savers, intermediaries. instruments and the
ultimate user of funds. The level of economic growth largely depends upon
and is facilitated by the state of financial system prevailing in the economy.
Financial system works as an effective conduit for optimum allocation of financial resources in an economy. It helps in establishing a link between the savers and the investors.
Basic Components of Financial System:
The term system’ in “Financial System” indicates a group of complex and closely linked institutions, agents, procedures, markets, transactions, claims and liabilities within a economy.
- Financial assets (loans. deposits, bonds, equities, etc.)
- Financial institutions (Banks, Mutual Funds, Insurance companies, NBFCs, etc.)
- Financial markets (money market, capital market, forex market, etc.) One more classification under this would be, Primary markets and Secondary markets. Primary markets handles new issue of securities in contrast secondary markets take care of securities that are presently available in the stock market. Regulation is another aspect of the financial system:
- RBI – Reserve Bank of India..
- SEBI – Securities and Exchange Board of India.
- IRDAI – Insurance Regulatory and Development Authority.
- PFRDA – Pension Fund Regulatory & Development Authority.
- NABARD – National Bank for Agriculture and Rural Development.