Can You Discuss The Elements Of Financial System?

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Alex Wheeler Profile
Alex Wheeler answered
The 'financial system' is a term used in finance to describe the system that allows money to go between savers and borrowers. The main elements of the system are generally said to be:
  • institutions
  • markets
  • instruments
  • services
  • practices
  • transactions
Financial institutions are organizations that offer financial services. There are three main types of financial institution: Banks (including credit unions, building societies etc.), insurance/pension companies, and investment funding companies/brokers.

Financial markets are what they sound like - the system that allows people to buy and sell goods and services to each other.

A financial instrument is an asset belonging to a person or company. This can include cash, bonds, or other assets; such as property or items of value.

Financial services are offered by financial institutions. These include such things as banking, insurance policies, loans and mortgages, as well as pensions and underwriting.

Financial practice is a sort of guideline around how the financial institutions should operate their services. The term 'GxP' relates to a set of guidelines called 'Good x Practice' - in this case, the x is replaced by 'Financial'.

Financial transactions are the actual exchange of assets for goods or services - paying for a new car, or a mortgage, for instance.

These six elements work together to create a healthy financial system, which in turn builds a strong economy. No one element is more important than the others - they simply represent different mechanisms within the system that allow it to function.
Chips Ters Profile
Chips Ters answered

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