Financial System
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A Financial System is an economic system that enables the transfer of money between savers, investors, and borrowers through financial institutions, financial markets, financial instruments, and financial services.
- AKA: Financial Architecture, Financial Framework.
- Context:
- It can typically facilitate Financial Intermediation through financial institutions such as financial banks, financial insurance companies, and financial investment firms.
- It can typically enable Financial Transactions through financial payment systems and financial settlement mechanisms.
- It can typically allocate Financial Resources via financial markets and financial pricing mechanisms.
- It can typically distribute Financial Risk through financial insurance products and financial derivative instruments.
- It can typically regulate Financial Activity via financial regulatory bodies and financial regulatory frameworks.
- It can typically provide Financial Information through financial reporting standards and financial disclosure requirements.
- It can typically support Financial Innovation via financial technology development and financial product creation.
- It can typically manage Financial Stability through financial prudential regulation and financial systemic risk oversight.
- It can typically facilitate Financial Inclusion via financial access programs and financial literacy initiatives.
- It can typically process Financial Data through financial information systems and financial analytic tools.
- ...
- It can often experience Financial Cycles through financial expansion phases and financial contraction phases.
- It can often create Financial Contagion via financial interconnections and financial systemic risk transmission.
- It can often generate Financial Exclusion through financial access barriers and financial inequality mechanisms.
- It can often undergo Financial Reform via financial regulatory changes and financial structural adjustments.
- It can often develop Financial Dependency between financial market participants and financial service providers.
- It can often foster Financial Globalization through financial cross-border flows and financial international integration.
- It can often experience Financial Technology Disruption via financial digital transformation and financial business model innovation.
- It can often create Financial Asset Bubbles through financial excess liquidity and financial speculative behavior.
- ...
- It can range from being a Simple Financial System to being a Complex Financial System, depending on its financial sophistication level.
- It can range from being a Traditional Financial System to being a Modern Financial System, depending on its financial technological advancement.
- It can range from being a Bank-Based Financial System to being a Market-Based Financial System, depending on its financial intermediation structure.
- It can range from being a Domestic Financial System to being a Global Financial System, depending on its financial geographic scope.
- It can range from being a Centralized Financial System to being a Decentralized Financial System, depending on its financial decision-making distribution.
- It can range from being a Regulated Financial System to being a Deregulated Financial System, depending on its financial regulatory intensity.
- It can range from being an Exclusive Financial System to being an Inclusive Financial System, depending on its financial access breadth.
- It can range from being a Stable Financial System to being a Volatile Financial System, depending on its financial system resilience.
- It can range from being a Public Financial System to being a Private Financial System, depending on its financial ownership structure.
- It can range from being a Formal Financial System to being an Informal Financial System, depending on its financial institutional formality.
- It can range from being a Thriving Financial System to being a Failed Financial System, depending on its financial system performance.
- ...
- It can provide Financial Capital through financial funding mechanisms and financial investment channels.
- It can perform Financial Clearing via financial transaction processing and financial settlement systems.
- It can have Financial Infrastructure including financial payment networks and financial trading platforms.
- It can establish Financial Trust through financial security mechanisms and financial oversight processes.
- It can enable Financial Mobility via financial capital flows across financial sectors and financial geographic regions.
- It can interact with Economic Systems through financial economic feedback loops.
- It can affect Political Systems via financial political influence mechanisms.
- It can impact Social Systems through financial wealth distribution effects.
- It can shape Technological Systems via financial innovation funding.
- ...
- It can be Financially Efficient in financial competitive market conditions.
- It can be Financially Fragile during financial stress periods.
- It can be Financially Integrated in financial globalization contexts.
- It can be Financially Adaptive through financial evolutionary processes.
- It can be Financially Distorted by financial regulatory arbitrage and financial market manipulation.
- ...
- Examples:
- Financial System Types by financial intermediation structure, such as:
- Bank-Based Financial Systems, such as:
- Market-Based Financial Systems, such as:
- U.S. Financial System with financial capital market prominence and financial securitization practices.
- UK Financial System with financial London stock exchange centrality and financial investment banking tradition.
- Canadian Financial System with financial market infrastructure and financial regulatory balance.
- Financial System Types by financial regulatory approach, such as:
- Highly Regulated Financial Systems, such as:
- Lightly Regulated Financial Systems, such as:
- Financial System Types by financial development stage, such as:
- Emerging Financial Systems, such as:
- Frontier Financial Systems, such as:
- Financial System Types by financial technological adoption, such as:
- Digital Financial Systems, such as:
- Traditional Financial Systems, such as:
- Financial System Types by financial sector composition, such as:
- Financial System Types by financial historical era, such as:
- Bretton Woods Financial System (1944-1971) with financial fixed exchange rates and financial dollar gold standard.
- Post-Bretton Woods Financial System (1971-present) with financial floating exchange rates and financial fiat currency system.
- Alternative Financial Systems, such as:
- ...
- Financial System Types by financial intermediation structure, such as:
- Counter-Examples:
- A Payment System, which facilitates payment transactions rather than the comprehensive transfer of money between savers and borrowers.
- A Currency System, which establishes medium of exchange rather than the entire financial intermediation process.
- A Fiscal System, which manages government revenue and government expenditure rather than financial intermediation.
- A Trade System, which organizes goods exchange and service transactions rather than financial resource allocation.
- An Accounting System, which records and reports financial information rather than facilitating financial intermediation.
- A Banking System, which is a component of a financial system rather than the entire financial architecture.
- See: Economic System, Monetary System, Banking System, Capital Market, Stock Market, Central Bank, Currency System, Financial Regulation, Financial Stability, Financial Crisis, Financial Inclusion, Financial Technology, Financial Globalization, Financial Institution, Financial Market, Financial Instrument, Financial Service, Financial Intermediation, Financial Risk Management.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/financial_system Retrieved:2014-8-3.
- In finance, the financial system is the system that allows the transfer of money between savers (and investors) and borrowers. A financial system can operate on a global, regional or firm specific level. Gurusamy, writing in Financial Services and Systems has described it as comprising "a set of complex and closely interconnected financial institutions, markets, instruments, services, practices, and transactions." [1]
According to Franklin Allen and Douglas Gale in Comparing Financial Systems:
"Financial systems are crucial to the allocation of resources in a modern economy. They channel household savings to the corporate sector and allocate investment funds among firms; they allow intertemporal smoothing of consumption by households and expenditures by firms; and they enable households and firms to share risks. These functions are common to the financial systems of most developed
economies. Yet the form of these financial systems varies widely."
Financial systems depend on the countries viewpoint on freedom of trade. Some countries i.e. The Soviet Union had socialist financial systems because they value centralized organized state funded trading rather than freedom of trade by everyone.
- In finance, the financial system is the system that allows the transfer of money between savers (and investors) and borrowers. A financial system can operate on a global, regional or firm specific level. Gurusamy, writing in Financial Services and Systems has described it as comprising "a set of complex and closely interconnected financial institutions, markets, instruments, services, practices, and transactions." [1]
- ↑ Gurusamy, S. (2008). Financial Services and Systems 2nd edition, p. 3. Tata McGraw-Hill Education. ISBN 0-07-015335-3