The financial system is the network that connects savers and investors through institutions, markets and instruments. It helps channel savings into productive investment, provides liquidity, supports price discovery, and enables risk transfer.
This topic is commonly tested using:
You should be able to:
Financial system is the arrangement of institutions, markets, instruments and services that facilitates:
Simple exam line: It links savers and borrowers/investors.
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The financial system is the network that connects savers and investors through institutions, markets and instruments. It helps channel savings into productive investment, provides liquidity, supports price discovery, and enables risk transfer.
This topic is commonly tested using:
You should be able to:
Financial system is the arrangement of institutions, markets, instruments and services that facilitates:
Simple exam line: It links savers and borrowers/investors.
A financial market is a platform (physical or electronic) where financial claims/instruments are issued and traded, enabling transfer of funds and price discovery.
Key functions (write any 5):
Broad classification (concept):
Role: they collect savings, provide credit/investment avenues, and offer financial services.
Financial instruments are documents/contracts representing financial value or claims.
Examples:
Saver (household) → Financial institution/market → Issuer (company/government) → Investment projects → Returns (interest/dividend) back to savers
Secondary market: Investor A sells → Investor B buys (funds move between investors; issuer not directly funded in that trade).
From this topic
Components of a financial system:
Any three components can be written in exams.
Money market vs capital market:
Thus, money market is short-term; capital market is long-term.
Financial institutions are intermediaries (banks, insurance, mutual funds etc.) that collect savings and provide credit/investment avenues (concept).
Institutions make the financial system efficient by mobilising savings, improving access to funds, and supporting economic growth.