Financial System – It’s Main Components and Functions

Financial System – It’s Main Components and Functions

In a simple learning language, finance system enables and monitors the transfer of money and its other forms between both – the investors and borrowers.

Financial System – It mainly refers to a systematic structure of the organization, which looks after all the process and procedures of finance accumulation and its further regulation.There are many heads which are present in between this whole financial system. Some of the indicators of economic systems are as mentioned below:-

  • Finance boards or institutions
  • Agents
  • Procedure handling people
  • Money markets
  • Everyday monetary transactions
  • Commercial claims and further liabilities

They help this particular system to work in a proper and legalized way, and also the overall system workings in three different parameters or levels – Directorial, provincial and international.

The 5 Big-League factors of Financial System and their functions:-

These financial systems have five essential components which are present or are common in many of the aligned financial systems.

Let us have an in-detail read upon these fantastic finance segments and their functions, which helps in binding each of our financial workings in place.

  • Money:

Everybody knows it right, as, without it, the whole system stands no meaning. It is a term or way, which is used for purchasing of products and services or further repayments of any others. Money as we all knows, because it’s necessary – that it’s a medium of exchange which gives us the access to have something of value in return.

  • Financial Associations:

These are also known to be financial institutions, which acts as a way to individuals for any deposits, borrowing or lending of money, funding or investment products. These are of several types, providing services and catering to every generation in line.

Some of them are actively mentioned below:-

  • Central Banks

They look into the overall working of each financial institutions and work as a supervisory and regulatory board for all of them.

  • Commercial Banks

They work directly with business sectors.

  • Credit Unions

These provide demographical memberships and other bank offerings.

  • Internet Banks

Same as conventional banking but in an online space and also in a quick way possible.

  • Savings –

The primary thing to do, and also the important one for a great future.

  • Investment Banks or Firms –

Place the savings in some fruitful assets and others to generate level-up returns

  • Brokerage Firms–

They provide assistance in buying and selling of securities

  • Insurance Companies –

Provide monetary safety and assurance against many unforeseen states like death, damage, accidents, or other misfortunes.

The list has many more to go for, as these are the only ways to circulate the monetary measures and mobilizing all available finances for future benefits.

  • Financial Markets:

It is a marketplace for all the workings of asset creation. Circulation of the same assets takes place in other available money markets through the individuals around to make more out of it in return. Finance Do My Homework

These financial markets are also known for their process of managing short-term and long-term monetary assets. It also helps in the following terms:-

  • Generating credits and allocating the same for liquidity
  • Channelizing the savings
  • Encouraging high economic growth
  • And all other financial help


  • Financial Instruments:

It is considered as one of the main components of the financial system all over the world. These are what we call, the monetary measures of credit and saving money in some form like:-

  • Bonds – It’s a debt instrument used for raising capital.
  • Securities – These are traded as equity and debt securities of a company like stocks and debenture or others.
  • Investments – Locking the money on some productive assets which will generate higher returns in future.
  • Deposits – Safely keeping the funds for any of the futuristic use.
  • Shares – Company stocks which they put on sale to generate capital.

These are all ways, that how can one choose to save up his money, or can also opt for investing it somewhere to have higher returns further.

  • Finance Related Services:

There are many types of services which are being continuously rendered by most of the present financial association and other institutions at a place. These services can start from basics like borrowing, purchasing, lending, or investing monetary resources and settling of the same in due periods.

Some of the main functions or services are mentioned below:-

  • Asset and liability management companies
  • Capital and debt financing for managing company workings
  • Mutual funds – A type of investment for a better future
  • Risk analysis and creating high ROI investment opportunities
  • Merchant banking – It means providing fundraising, advising or loan services to companies around

This list is long enough, because of the amount and variety of services these financial systems and the associations and intermediaries under the same provides to the residents like us.

Every country has its separate financial system aligned, for smooth incoming and outgoing processing of finance and its other measures available.


Author Bio

ChristianBaker is one of the well-known tutors in the field of finance and marketing. he has been tutoring MBA students for a number of years.  Her reputation among students is a testimony enough of her capabilities as a teacher. She also works as an online tutor at where she provides useful academic guidance to many students across the world.

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