FINANCIAL SYSTEM & ITS COMPONENTS

Finacial System plays a major role in boosting any economy through generation, regulation and facilitation of fund. Lets learn all about this concept in detail :-

Meaning - A financial system involves various components like the financial markets, financial intermediaries, suppliers and borrowers of fund facilitating trade in financial assets regulated by governing bodies.

It serves as a network between all financial institutions providing financial services to trade in financial instruments in a way connecting demand with supply. It even serves as a source of capital formation for individual, businesses and government.

  

Financial Market - It is a market for creation and exchange of financial assets involving various participants facilitating price discovery. It may further be divided as Money Market and Capital Market. Money market involves trading in short-term securities like t-bills, commercial papers, certificate of deposits etc. while Capital market involves trading in long-term securities like shares, bonds and debentures.

Financial Intermediaries - Banks, Mutual Funds, Non-Banking Financial Companies, Insurance Companies are few examples of financial intermediaries. These intermediaries provides services such as investing, borrowing, insurance, deposits, wealth management.

Regulatory Bodies - RBI (Reserve Bank of India) regulates the money market as well as all commercial banks. SEBI (Securities and Exchange Board of India) regulates the capital market involving stock exchanges, brokers and sub-brokers. IRDA(Insurance Regulatory and Development Authority) regulates and promotes the interest of insurance industry. PFRDA (Pension Fund Regulatory and Development Authority) regulates the pension market.

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