A Financial System can be defined both at the level of a company and an economy. A company’s financial system is meant to track the financial tasks of the company. In a company this system would include all aspects of the finances which includes revenue, expenses, accounting measures, financial statements and so on.
A country’s financial system includes banks, financial institutions, insurance companies and other institutions that facilitate economic transactions. In simple terms, this would include all the lenders, borrowers and financial institutions within an economy.
Components
There are three main components for this system:
- Financial Assets
- Financial Institutions
- Financial Markets
In Indian Context
The financial system in India can be divided broadly into to categories:
- Indian Capital Market, which the market for medium and long term funds.
- Indian Money Market, which is the market for short term funds. This market does not deal in cash but in financial instruments such as treasury bills, bills of exchange and so on.
Objective
The aim of the financial system of an economy is essentially to provide ways for collecting money from those who have it and distributing to those who can use it in the best possible ways. Hence the objective is to allocate the economic resources efficiently in order to yield the best returns.
