How the Financial System Can Help To Allocate Resources within the Economy Summary

How the Financial System Can Help To Allocate Resources within the Economy
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Background
The financial system is a set of institutions (financial and government entities), financial assets, and markets necessary for the savings (idle money) of some economic agents to go to those who need credit. The system requires borrowing and lending funds where there is demand and supply of funds affects the households, firms, government, and non-residents (Burton and Brown, 2014, p. 10). Additionally, the financial system links savers and investors to facilitate the exchange of goods and services. It is a mechanism of transfer resources and is essential for capital formation. There is a set of institutions that invest people's savings, and this is essential in developing economic activities (production and consumption). Banks are the largest and most important participants in the financial system and markets.
Components of a financial system The components of a financial system include financial institutions, financial markets, financial instruments (assets or securities), financial services, money, and regulatory agencies.
There are international monetary and financial institutions, and these institutions lend funds or grant credits, with their own funds or with funds received from third parties
Both national and international financial markets are necessary for the exchanges of financial assets, and the purpose of the financial market is to put bidders and demanders in contact.
Financial instruments include assets or securities that can be traded, and they include cash and derivative instruments. For the lenders, financial instruments for lenders are savings accounts, and for the borrowers', loans payable, but the most common financial instruments are bonds and stock. Some companies offer specialized financial services such as insurance, pension funds, and portfolio investors. Money is required to pool funds, and borrowers money from lenders and lenders make a profit through interest income, and banks are the financial intermediaries
Making funds is possible when there are surplus monetary resources, and the credit financial intermediaries are in charge of taking deposits from the public and lending them to those who demand resources. Regulatory agencies or authorities regulate the financial system ought to ensure there is the proper functioning of the financial system, including the payment systems. Regulators also focus on rules and supervision.
-Surplus and deficit units
The financial system allocates from the surplus units to the deficient units. For ins...