Understanding The Financial System

Understanding The Financial System

Financial System:  The financial system plays a vital role in the growth and economy of the country.  The good financial system enhances the transfer of funds in a more productive way.  A good knowledge of the financial system helps to understand the various financial instruments, about the market and the regulatory bodies of these systems.

Financial Instruments or Assets:

Financial instruments are those intangible form of assets in which investors seek to gain more profit over them.  Recent years the cryptocurrency, a digital currency, has gained more importance in the minds of people.

The role of financial instruments:

  • It is generally between the two parties, issuer, and investor.
  • It helps to allow the flow of funds.
  • It also helps to reduce unavoidable risks.
  • It serves as a security for the investors and the issuer.

 

Financial Market:

It is a place or a platform in which the investors wish to buy or sell shares, derivatives, Money market instruments like Treasury bill, commercial paper, cryptocurrency like bitcoins, ethereum etc.  The investors want to maximize their profit on the investment made on these financial securities.  All these financial securities have their own advantages, but it is the duty of the investors to be aware of the best option which yields a good and fair return.  This financial market helps to regulate and facilitates the flow of funds among the company, government, and the individual.

The economic role of financial markets:

  • Price: The traded instruments like bonds, currency, stocks will have a certain value for it. The transactions between the buyers and the sellers will determine the price value of these financial instruments.  If the shares of the company have high value among the investors, then the price of that company shares will be priced higher so that the company can attract the investors to earn more profit for their increased performance.
  • Liquidity: Liquidity is nothing but how easily you can convert your financial instruments into a cash relatively a fair amount.  All financial markets seem to offer a certain level of liquidity so that these financial instruments will have a fair value at any time.
  • Transaction costs: When there is a trading of financial instruments between the buyer and the seller, there exist the transactions costs.  The transactions cost is the cost which is incurred for trading the financial instruments.  There is no or very less transaction cost for cryptocurrency trading when we use automated robots like Bitcoin Loophole review, Crypto soft Review and so on.

Financial Regulators:

The financial instruments are regulated by specific bodies in order to enable fair trade among the buyers and sellers and also to avoid illegal and fraudulent practices.  Transparency in information about the company is also one of the main aims for regulation in order to attract investors.