FINANCIAL SYSTEM (1)

How Does The Financial Sector Work?

• Have you ever wondered how money goes and comes into the economy?
• Have you ever gave some time to think about how there is always money even when everyone is talking about recession and inflation?

Well in this series you will learn how money goes from the surplus unit to the deficit unit and how the financial sector enable stability in the economy.
 
Hi friend, it’s been a minute, trust you’ve been good? I hope you are showing up everyday at handling your finances, because like I said in my last post, consistency matters if you want to be a pro at managing your money. Well today we are diving more into a broader aspect of finance - FINANCIAL SYSTEM.

What is a Financial System?

Financial system is a system of rules and regulations and set of financial arrangements, institutions, markets, operations and agents whereby they relate to one another within the financial sector of an economy and with rest of the world in the provision of financial services. In other words, a financial system is an economic arrangement wherein financial institutions facilitate the transfer of funds and assets between borrowers, lenders and investors. Its goal is to efficiently distribute economic resources to promote economic growth and generate returns for the market participants.
 
The financial system basically includes all financial intermediaries that operate in the financial sector in the economy. The financial intermediaries are those responsible for making funds available across all the sectors, i.e they serve as a linkage between the savings-surplus unit and the savings-deficit unit within the economy. The savings-surplus unit refers to group of individuals or organizations within the economy with more funds than they require for current use, this unit constitute the savers and suppliers of funds to the economy. The savings-deficit unit on the other hand are group of individuals or organization in need of funds to finance their operations. Examples of financial intermediaries are financial institutions like; banks, insurance companies, mutual funds, pension funds etc.

From the above, I'm sure you now know what a financial system is, who financial intermediaries are and you have a little idea of how they work. In my next post, we will talk more on how the financial system works and those who participate in the operations of the financial system.

I'm sure you learnt a lot from today's post, let me know what stands out for you in the comment section.

See you soon.