Financial System - An overview

Financial System – An overview

The world financial system is composed of 4 major entities –

• Financial institutions
• Financial markets
• Financial products
• Financial services
  

Before we get a bird’s eye view of these 4 major entities of the financial system, let’s discuss a few basic questions –

Why at all is the financial system required?
The financial system is needed to provide the below mentioned functions –

Savings and investment functions
Liquidity functions
Payment functions
Risk mitigation and contingency functions
Financial policy functions


Who all need the financial system?
The financial system is needed by one and all namely –

Financial institutions including the FIIs or the foreign institutional investors
Corporations and companies
Individuals
Government


How does the financial system work?
The financial system facilitates the flow of funds either directly or indirectly, from the area of surplus to the area of deficit.


Now let us see the subdivisions of the 4 broad entities of the financial system.

The financial institutions could be subdivided into –
Regulatory
Intermediary (banking and non banking)
Non intermediary
Others

The financial markets could be subdivided into –
Primary markets & Secondary markets
Both the primary and the secondary markets could be of organized or unorganized nature. The organized markets could be further classified as –
Capital markets
Money markets
Derived or derivative markets

The financial products are sub-categorized into –
Debt instruments
Equity instruments
Hybrid instruments
Derived instruments

The financial services are sub-categorized into –
Market supporting systems (Trading, Broking, Clearing, Settlement)
Custodial and Depository services
Credit rating
Factoring and Forfeiting
Risk management
Wealth management
Asset management
Mutual funds services
Hedge funds services
Insurance
Consultancy
Merchant banking
Investment banking
Leasing
Hire purchase
ET AL…


In our subsequent discussions at CAFE FINANCE, we would be covering in detail, these broader aspects of the world financial system.

Basics of Investment

Investment Basics

Investment is a word that has long been used by almost every individual. And this is all because investment forms a very vital part of every one’s lives.

The money that we earn from our hard work has got huge potential to secure our future. But to do that we have to rightly plan our investments. After spending a part of our earned money, we keep aside a part of it and save it for meeting future expenses. But at times this secure money sits idle with us and thus does not give us back more money, which it could otherwise, if it had been invested wisely. This secure money forms the very base of investment. Thus investments are done so that our idle sum of money could be made to work for us and in turn give us some sound return.

People make some specific goals in their lives and for this also they need to plan out their investments in advance. One should start investing in their lives as early as possible. This would help them garner good money on their investments in the future to achieve their targets or meet their goals.

Money should be invested on a regular basis. This money could be a big sum or a small sum, depending upon the savings of the individual. It has always been mentioned that investments should be made keeping a long term perspective in mind and never a short term. Long term investments are generally more secure than short term and also have the potential to generate good amount of money in future. In long term investments, the concept of compounding plays a very crucial role, wherein the principal sum of money and the interest earned on it are reinvested year after year.

There are some basic guidelines that should always be followed while making investments. Written documents should be obtained that clearly explain the type of investments being made. The investor should read and thoroughly understand such documents and also verify its legitimacy. The costs and benefits that are associated with such investments should be calculated beforehand. After ascertaining the appropriateness of the investments for the specific goals, the investor should assess its risk return profile. The safety aspects and liquidity functions of the investments should be known and all such details should be compared with the other available investment products or services. A very basic but still a very vital point is that the investor should make such investment planning with only authorized investment planners, after seeking all clarifications about the concerned intermediary and its services. And last but not the least; the investor should also look out for the various options that are available, in case some things were to go wrong.

The various types of investment options that are available are as follows –
Physical assets like gold, silver, commodities, jewellery, real estate properties, et al.
Financial products like bank fixed deposits, life insurance, pension funds, and mutual funds, shares, bonds, debentures et al.

Welcome

Finance is the life and blood for any individual or organization. Whether you are an employee or a manger or an entrepreneur, whether you have a home business or a multinational company or an online firm, you just can’t afford to undermine the importance of finance and financial news.

Finance can be defined as the branch that deals with resource allocation and resource management. Simply put, finance is all about money and related decisions. In order to make informed judgments and evaluations, you should be having a sound knowledge of finance topics as well as latest financial news and trends. We at "CAFE FINANCE" strive to bring to you the most exhaustive and detailed analysis of all finance related topics, explained in simple terms. Reading these articles will give you a fairly good idea about how markets and money work and help you in making wise financial decisions. Just click on the appropriate category and read on...

Welcome to CAFE FINANCE ... !!!