The financial system allows the flow of funds between lenders and borrowers through financial intermediaries. It consists of six essential elements: 1) lenders and borrowers, 2) financial intermediaries, 3) financial instruments, 4) money creation, 5) financial markets, and 6) price discovery. Allied players that support the system include brokers/dealers, portfolio managers, financial exchanges, credit rating agencies, and financial regulators.

1. FINANCIAL SYSTEM

2. INTRODUCTION
Basic function of finance industry is to move money within the financial system by
collecting funds from one group of people or institutions who have surplus money
to invest and providing this collected money to groups of people or institutions in
a need for money (Called flow of funds).

3. DEFINITION
The Financial System is a set of arrangements/ Conventions embracing the lending
and borrowing of funds by non-financial economic units and the intermediation of
this function by financial intermediaries in order to faclilitate the transfer of funds, to
creat additional money when required, and to create markets in debt and equity
instruments (and their drivatives) so that the price and allocation of funds are
determined efficently.

4. OTHER DEFINITION
A Finacial System within the scope of finance is system that allows the exchange of
funds between lenders and borrowers,and investors.They consist of complex closely
related services, markets and institutions intended to provide an efficient and regular
linkage between investors and borrowers.

5. ESSENTIAL ELEMENTS OF FINANCIAL SYSTEM
The definition identifies the six essential elements of a financial system:
1. The Lenders and Borrowers: i.e the non-financial economic units that undertake
the lending and borrowing process.
2. The Financial Intermediaries: which intermediate the lending and borrowing
process,meaning that they interpose themselves between the lenders and borrowers.
3. The Financial Instruments (marketable and non-marketable): Which are
created to satisfy the needs of the various participants.
4. The Creation of Money: when Required i.e the unique money creating ability of
banks.

6. ESSENTIAL ELEMENTS OF FINANCIAL SYSTEM
5. The Financial Markets: i.e institutional arrangements and conventions that exist
for the issue and trading (dealing) of the financial instruments.
6. Price Discovery: i.e the determination or making of the price of euity and the
price money/ debt (the rate of interest).

7. ALLIED PLAYERS IN THE FINANCIAL SYSTEM
The definition covers the essence of the financial system.In addition to the mentioned
elements,there are also allied participants/ players/ entities in the system,without
which the system would not function efficiently. They are:
1. Brokers and Dealers: i.e the members of exchanges and /or financial
intermediaries that faclilitate the trade in financial instruments (which we refer to here
collectively as broker-dealers).
2. Portfolio Managers: i.e the corporate entities or departments of Financial
intermediaries that mamage funds on behalf of principals(owners or holders of
money).
3. Financial Exchanges: that allow the broker-dealers to faclilitate trading in
securities, and create the mechanism for clearing and settlement of trades in a risk-
minimizing manner.

8. ALLIED PLAYERS IN THE FINANCIAL SYSTEM
4. Credit Rating Agencies: which analyse relevant financial and economic data
pertaining to the issuers of securities and assign ratings to the securities reflecting
the probability of the issuers meeting their financial obligations (interest and
principal).
5. Financial Regulators: that regulate and supervise all players in the financial
system.