Components of Financial

System
 Financial System

Financial Common Goal:

Institutions ‘To transform
savings into real
Financial
Markets investments’

Financial Savers
Instruments
Investors
Financial
Services
 Functions of Financial System

Establishes a bridge
Increases savings and
between savers and
investment rate
investors

Directly and
Makes allocation and Indirectly influences
utilization of savings volume of funds
optimal and efficient available for
productive activities
 Financial Institutions

Provide various types of Financial Services

to their customers.

Also known as
‘Financial Intermediaries’
as they intermediate between savers
and investors.

Transfer funds from those who save money to those who borrow money.
Encompass a broad range of business operations within the financial services
sector, including banks, trust companies, insurance companies, brokerage
firms and investment dealers.
 Types of Financial Institutions

Commercial • Accept deposits and provide security and

convenience to their customers

Banks • Make loans that individuals and businesses use to

buy goods or expand business operations

• Underwriting debt and equity offerings,

Investment • Acting as an intermediary between an issuer of
securities and the investing public,
Banks • Facilitating mergers and other corporate
reorganizations.

Insurance • Pool risk by collecting premiums from a large group

of people

Companies • Helps individuals and companies manage risk and

preserve wealth.
 Types of Financial Institutions

• Intermediary between buyers and sellers to facilitate

Brokerages securities transactions.
• Compensated via commission after the transaction has
been successfully completed.

• Corporation or a trust through which individuals invest in

Investment diversified, professionally managed portfolios of securities
by pooling their funds.
Companies • Investor can purchase securities indirectly through a
package product like a mutual fund.

Non-Banking • Not technically banks but provide some of the

Financial same services as banks.
• Savings and Loans, Credit Unions, Shadow Banks
Institutions
 Financial Markets

Facilitates buying and selling

of Financial Instruments.

Performs following functions:

1. Facilitation of price discovery
2. Provision of liquidity
3. Separation, Distribution,
Diversification and
Distribution of Risk

Classified as
Capital Markets and Money Markets /
Primary Markets and Secondary Markets / Debt Market and Stock Market /
Organized Market and Unorganized Market
 Financial Instruments

Vehicles through which

investments are made.
Financial contracts between
interested parties, that can be created,
traded, modified and settled.

Types of Financial Instruments include:

Treasury Bills • Derivatives • Promissory Notes

Bonds • Government Securities • Shares

 Financial Services

Services offered by
Financial Institutions

Concerned with design and delivery of

financial instruments and advisory services.

General Services Fund Based Services Fee Based Services

• Capital Market Services • Leasing • Issue Management

• Money Market Services
• Retail Services
• Wholesale Service
• Hire Purchase
• Factoring and Forfeiting
• Mutual Funds
• Venture Capital
• Portfolio Management
• Merchant Banking
• Credit Rating
• Debt and Capital
Restructuring