Some financial analysts believe that a financial system is a set of institutions, such as banks, insurance companies, and stock exchanges, that permit the exchange of funds. Financial systems exist on firm, regional, and global levels. Borrowers, lenders, and investors exchange current funds to finance projects, either for consumption or productive investments, and to pursue a return on their financial assets. The financial system also includes sets of rules and practices that borrowers and lenders use to decide which projects get financed, who finances projects, and terms of financial deals.
However, Revell (1973), argues financial institutions and financial markets ‘are not the whole of financial system, and they are not even an essential feature of any financial system. He further contends that ‘ the essential feature of any financial system consists of a number of financial inter-relationships between the persons and bodies that make up an economy, and the basic structure of a financial system has three features. Do you agree? Clearly discuss the school of thought you have aligned with in your understanding of the financial system.