Financial system meaning concept basic function 2020

Financial system meaning concept basic function 2020

Financial system meaning concept basic function- A system that aims at improving and providing a smooth, regular, cost-effective and efficient linkage between depositors and investors are called the financial system. It refers to a set of institutional arrangements through which financial surpluses in the economy are mobilized from surplus sectors to deficit sectors.

Thus, a financial system may be defined as a complex and well-integrated chain of financial institutions, markets, instruments, and services. The basic aim of a financial system is to facilitate intermediation of funds, i. e. transfer and allocation of funds in an efficient and effective manner. The economic growth of a nation doa depends on the financial system to a great extent as it plays a major role in mobilizing scarce resources of a country optimally. Write a note on the formal and informal financial system in India. The essential feature of the financial system of most developing countries is coexistence and cooperation between formal and informal financial sectors.

Financial system function:-

The formal financial sector is an organized, institutional and regulated system that caters to the financial needs of modern spheres the whereas the informal financial sector is unorganized.

The non-institutional and non-regulated system dealing with traditional and rural spheres of economy. The formal financial system comes under the purview of the ministry of finance, RBI, SEBI, and other regulatory bodies. The informal financial system consists of individual money lenders such as a landlord, traders, and relatives. Groups of individuals operates as “funds” or “associations. “These groups function under a system of their own rules such as partnership firms consisting of local brokers, chit funds, etc.

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