TOPIC 1; OVERVIEW OF EQUITY MARKETS AND STRUCTURE

The financial system refers to the network of institutions, markets, and intermediaries that facilitate the flow of funds and financial resources within an economy. It plays a crucial role in allocating resources, enabling economic activities, and promoting growth.

A well-functioning financial system is crucial for economic stability, growth, and development. It helps allocate resources efficiently, manage risk, and provide liquidity to the economy. However, it’s also important to regulate and supervise the system to prevent excessive risk-taking and maintain stability.

Financial intermediaries are institutions or entities that act as middlemen or intermediaries in the financial system. They play a crucial role in facilitating the flow of funds between savers and borrowers. Essentially, they collect funds from savers and allocate them to borrowers, thereby providing a critical link in the process of financial intermediation.

components of financial system

There are five Basic Components of Financial System;

1. Financial Institutions
2. Financial Markets
3. Financial Instruments (Assets or Securities)
4. Financial Services
5. Money

Characteristics of Well-functioning Financial System

1. Efficiency
2. Liquidity
3. Information Transparency
4. Risk Diversification and Management
5. Intermediation

Role of Financial System in the Economy

1. Mobilizing Savings
2. Allocating Capital
3. Facilitating Investment
4. Risk Diversification:
5. Intermediation

Financial Intermediaries Classification

1. Banks
2. Credit Unions
3. Savings and Loan Associations (S&Ls)
4. Insurance Companies
5. Mutual Funds

Role of Financial Intermediaries

1. Channeling Funds from Savers to Borrowers:.
2. Risk Transformation and Management
3. Liquidity Transformation:
4. Intermediation and Information Asymmetry:
5. Providing Diversification Opportunities:
6. Reducing Transaction Costs