1. A financial system is a conglomerate of various markets, instruments, operators, and institutions that interact within an economy to provide financial services such as resource mobilization and allocation, financial intermediation and facilitation of foreign exchange transactions and foreign trade. Discuss this comprehensively!
2. Financial Markets include any place or system that provides buyers and sellers the means to trade financial instruments, including bonds, equities, the various international currencies, and derivatives. Financial markets facilitate the interaction between those who need capital with those who have capital to invest. In view of this, clearly discuss the functions, Structure and Instruments used in Financial Markets.
A financial system is a conglomerate of various markets, instruments, operators, and institutions that interact within an economy to provide financial services such as resource mobilization and allocation, financial intermediation and facilitation of foreign exchange transaction and foreign trade. Discuss this comprehensively.
The financial system thus, plays important roles in the process of economic growth and development of a country. In Nigeria, the financial system has undergone remarkable changes in terms of ownership, structure, the depth and breadth of instruments employed the number of institution established, the economic environment and the regulatory framework within which the system operates. A financial system can be perceived on a company, regional, or global scale, which facilitates the practice of exchanging funds between one entity to another. It also involves various players such as insurance companies, stock exchange, investment bank, and more, financial systems are regulated as their processes influence and contribute to the growth of many assets.
The financial system is composing of many components depending on the level. From a company’s perspective, its financial system includes a procedure that follows its financial activities. It would include aspects such as finances accounting, revenue, expenses, wages, and more. From a regional standpoint, the financial system, as mentioned above, facilitates the exchange of funds between borrowers and lenders. Players on a regional level would include banks and other financial institution such as clearing houses.[monetary theory and policy an introductory text by a global scale , the financial system includes the interactions between financial institutions, investors, central banks, government authorities, the world bank, and more. For a example, one of the players within the financial system is the Bank of Canada (BOC). The BOC promotes economic and financial welfare for Canadians by cultivating a financial system whereby banks, credit unions, financial markets, and other factors interact to ensure the economics landscape continue to operate effectively for its citizens. The BOC achieves its objectives through the following; providing central bank services such as liquidity and credit facilities, and also developing and implementing national policy and so on.
2. Financial markets include any place or system that provides buyers and sellers the means to trade financial instrument, including bonds, equities, the various international currencies, and derivative. Financial markets facilitate the interaction between those who need capital to invest. In view of this, clearly discus the functions, structure, and the instruments used in financial markets
The following are the function structures and instrument of financial markets;
Price determination, investors aim to make profit from their securities however unlike goods and services whose price is determined by the law of supply and demand prices of securities are determined by financial markets. Secondly, Lowest the cost of transaction. In financial markets various types of information regarding securities can be acquired without the need to spend. Thirdly, Liquidity, buyers and seller can desire to trade their securities anytime they can use financial markets to sell their securities or make investment as they desire. Fourthly, Put savings into more productive use, A saving account that has money in its should not just let that money sit in the vault. Financial markets open it up to individuals and companies that need a home loan, student load or business loan (CBN Brief, 1997)
The structure of financial markets includes foreign exchange markets (forex) or currency markets, credit market and insurance market, etc.
Foreign exchange market(forex)or currency market, It is the market in which the subject of the participants interaction is the currency and everything that is related to its equivalent derivative instrument may also serve as trading instrument[for example currency CFO] depending on the form. The settlement there can be cash and non-cash. According to the transaction term the market can be current [spot] and derivative currency market. Derivative market contracted can be forward contract or future feature pricing. Credit markets, this market suggest a redistribution of spare funds from those who have them to those who do not have them. Unlike the investment market the credit market is more complex [it has a three tier structure] and has tighter requirements for participants to fulfill their obligations. Insurance market, It is a separate segment as insurance companies are one of the main investor at the global level, providing various kinds of insurance services. They accumulate capital which they can temporarily invest in deposit, metal and the structure market (Principles of money, Banking and financial markets). The instrument of financial market; Financial instrument are assets that can be traded or they can also be seen as package of capital that may be traded. Financial instrument can be divided into two types, Cash instrument and derivative instrument, Cash instrument; the value of cash instrument are directly influence and determined by the market, and this securities are easily transferable While derivative instrument are based on the vehicle underlying components such as asset, interest rate or indices.
A financial system is a conglomerate of various markets, instruments, operators, and institutions that interact within an economy to provide financial services such as resource mobilization and allocation, financial intermediation and facilitation of foreign exchange transactions and foreign trade. Discuss this comprehensively!
Definition of a financial system.
Financial system can be defined as a system where by all the types of financial institutions come together to interact and facilitate the transfers of funds and assets between the borrowers, lenders, and investors.
financial system is a set of institutions, such as banks, insurance companies and stock exchanges, that
Allow the exchange of funds.
Financial system involve borrowers, lenders, and investors negotiating loans and other transactions.
A financial system is a system that allows the exchange of funds between financial market participants such as lenders, investors, and borrowers. A financial system also includes set of rules and practices that borrowers and lenders use to decide which projects gets finance, who finances projects and terms of financial deals.
Financial Markets include any place or system that provides buyers and sellers the means to trade financial instruments, including bonds, equities, the various international currencies, and derivatives. Financial markets facilitate the interaction between those who need capital with those who have capital to invest. In view of this, clearly discuss the functions, Structure and Instruments used in Financial Markets.
Function of a financial markets.
(1) price determination
(2) Funds mobilization
(3) liquidity
(4) capital formation
(5) Easy Access
(6) Risk sharing
Price determination: Financial markets enables the interaction of buyers and sellers to determine the price of traded assets. Price determination in the financial markets are determined by the effects of demand and supply. financial market provides the means by which the prices are set for both financial assets.
Funds mobilization: the financial market helps in the mobilization of the savings of the investors. Financial markets provides an Avenue for fund allocation in the economy based on the effects of demand and supply through the mechanism of the price.
Liquidity: The liquidity function of the financial market provides an opportunity for the investors to sell their financial instruments at its fair value prevailing in the market at any time during the working hours of the market.
Therefore, in the financial market investors can sell their securities readily and convert them into cash thereby providing the liquidity.
Capital formation: Financial markets provide the channel through which the new savings of the investors flow in the country which aid in the capital formation of the country.
Risk sharing: Financial market performs the function of the risk-sharing as the person who is undertaking the investments are different from the persons who are investing their fund in those investments.
Risk sharing: Financial market performs the function of the risk-sharing as the person who is undertaking the investments are different from the persons who are investing their fund in those investments.
Structure of a financial markets comprises of five(5) key components.
(1) the debt market
(2) the equity market
(3) The foreign exchange market
(4) the mortgage market
(5) The derivative market
Debt market: also often referred to as the bond market. The debt market is important to economic activities because it provides an important channel for corporations and governments to finance their operations. Interactions between investors and borrowers in the bond market determine interest rates.
Equity market: also known as the stock market. The stock market is the most widely followed financial market in the United States. It is important because fluctuations in stock prices effect investors’ wealth and hence their saving and consumption behavior, as well as the amount of funds that can be raised by selling newly issued stocks to finance investment spending.
Foreign exchange market: are where currencies are converted so that funds can be moved from one country to another. Activities in the foreign-exchange market determine the foreign-exchange rate, the price of one currency in terms of another.
Financial derivatives : are contracts that derive their values from the underlying financial assets. Derivative instruments include options contracts, futures contracts, forward contracts, swap agreements, and cap and floor agreements. These instruments allow market players to achieve financial goals and manage financial risks more efficiently.
Montage market:
Financial instruments.
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form of currency (forex); debt (bonds, loans); equity (shares); or derivatives (options, futures, forwards).
AN OVERVIEW OF THE FINANCIAL SYSTEM.
A financial system is an economic arrangements ,or models by which financial institutions facilitates the transfer of funds and assets amongst borrowers, lenders and investors.
More succinctly however, financial system, is a system that comprises of various markets, operators, instruments and institutions that play within the economy to provide financial services such as resource mobilization and allocation, financial intermediation and facilitation of transactions both nationally and internationally.
A country without a viable financial system is said to be a country with both political and economic I stability. Without a financial system, there will double coincidence of wants, which is one of the disadvantages of barter system.
Over the years, as economic model keep improving, empirical findings have been made to Foster a smooth, non bottle-neck transaction between individuals, institutions and even countries. Let’s take for example, within the individual level, say , that Nnaemeka Ikeh has an investment idea that he has beautifully thought out, which requires a N100,000 capital to fund his idea into reality, but he does not have it. Let say again, that Mr.Cornel Omang has a N100, 000 that he has saved over time, but does not have ideas on how this N100,000 can earn him extra income. If Nnaemeka could get intouch with Cornel , who wants to earn extra income, but doesn’t know how, even with his N100,000, then Nnaemeka dreams of making his ideas to manifest would have become real. Remember that the idea of Nnaemeka searching for fund is to make his ideas known so as to generate him money. Let’s say, at the end of a calendar year, Nnaemeka was able 30% from the fund being borrowed from Cornel, and chooses to pay Cornel an intereste of 15%, both Nnaemeka with ideas but no money , and Cornel with money ,but no idea would have made 15% profit at the end. So, financial system, at the individual level makes easy and smoothy for transactions to take place.
Financial system, which financial market is a component of, is very critical for producing an efficient allocation of capital, which contributes to higher production and efficiency for the overall economy.
Firms , as well as individuals obtain funds in the financial market in two ways. The most common and wildly practiced method is the issuance of debt instrument , such as bonds or a mortgage, which is a contractual agreement between the borrower to pay the holder of the instrument fixed amount at a regular intervals.
Apart from individual, firms or government, countries can as well raise funds through financial market, say through an instrument called foreign bond. Foreign bonds are sold in a foreign country and are denominated in that country’s currency