Define Financial System. Why should one study financial systems?

The word “System” is a set of inter-related components working together to achieve some purpose.

Financial System helps economic development of a country by acting as a bridge between savers and investors.

Financial system is set of inter-related institutions, instruments, and markets, that raise (saving) funds and channels them to their efficient use.

In other words, a financial system comprises individuals (savers), intermediaries (financial institutions), markets (money and capital markets), and users (borrowers of money). Hence, the financial system acts as a intermediary between the savers and users (investors).

Financial managers task is to provide sufficient funds to meet all the likely needs of a business undertaking. To provide sufficient funds, he/she needs to have a clear understanding of a financial system.   

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