The paper "What Are the Primary Elements and Functions of a Modern Financial System" is an outstanding example of a finance and accounting assignment. A financial system refers to a system that allows money to circulate between savers and borrowers. It is comprised of various elements which make it a system work. These elements need each other in order to function fully. Its financial system can operate in a global perspective, regional perspective or a firm’ s specific level (Gurusamy, 2008). Financial play a central role in the allocation of resources between various users in the financial sector.
The elements of financial systems include; institutions, markets, instruments, services, practices and transaction. Financial institutions are composed of all the entities that deal with financial transactions. These transactions range from deposits made by people, investments and loans. The institutions which carry out this financial transaction are banks, insurance companies, trust companies and investment dealers. In the modern world, almost everyone is carrying out a financial transaction, this can be sending of money, borrowing of money, investing or even asking for loans. Since people depend on financial institutions, the security of the transactions is a major consideration.
They are regulated by the government to make sure that the fund's people work with are safe. There are of three types; depository institutions, contractual institutions and investment institutions. The function of financial institutions is to provide service to the intermediaries in the financial market. They are responsible for the transfer of funds from one entity to another. For example can be, from investors to organizations those who need the funds. Financial institutions also facilitate the distribution of money in the economy (Brown S, 1985). Markets are another element of the financial system.
A financial market is a place where people can trade. The exchange of goods and services are the major activities that take place in the financial market. It is through markets that there is a possibility of exchange of goods for value. The financial market provides a place where buyers and sellers can participate in the trade of commodities and services like bonds, equities, currencies and derivatives. The financial market is characterized by having, a rule which regulates it, transparent pricing, costs and forces which determine the prices of securities.
Financial markets are available in diverse regions in the world. An example of a financial market in the New York stock exchange which handles trillions of dollars. Example of financial markets is bond markets, capital markets, stock markets and cash or spot markets. A financial instrument is a document representing a jurisprudence involving monetary value. Financial markets can be classified as equity-based which represents the ownership of assets or debt-based which represent the ownership of a loan which has been made.
Financial instruments have unique characteristics, this is because they outline rules which are made by different persons making different contracts. They also have a unique structure. The function of financial instruments is to allow the efficient flow of capital which is made by investors in the world (Franklin, 2001). Financial services are economic activities which are provided by the finance industry. This include, organizations that manage monetary terms including banks, credit cards companies, accountancy companies and insurance companies. There variety of financial service undertaken by these instutions.
For example, commercial banking services, which helps other business to raise money. Another function of financial service is keeping of money safe and withdrawing when requested. The insurance if cheque book in financial institutions is also another financial service. Transfer of funds is also another financial service which is an element of the financial system (Sanford, 2004).
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