Introduction:The financial systems are markets that exist in every country (as long as money is involved, so is the financial system)It is an essential part of the economyIt also help in the growth and development of the economyIts main role is to provide services that help business to operate correctly and smoothlySince it has a huge impact on the economy and deeply involved with money, there is a need of controlling and supervising.
Thus the financial system "is the totality of the financial transactions that take place and the financial instruments that they give rise to" (Mason 1976: xiv). It comprises a network of financial institutions and financial markets.
Body:Financial institution (financial intermediaries): "All organisations that specialize in handling financial transactions whether as principals, agents or consultants" (Mason 1976: xiii). These institutions are divided down into 2 categories which are deposit and non deposit intermediaries. These two types would then be further broken down into even smaller institutions.
Both having advantages and disadvantages of their own.
1.Deposit intermediaries: Nowadays there are not very much different between them except the regulatory constraints imposed on them- how they are limited by legal law (Kim 1993:32).
Banks (all banking institution: deposit banks, overseas banks, merchant banks): (Mason 1976: xiii) a non-mutual organization, usually a corporation which main function is to acquire funds from surplus economic units and channel such funds to deficit units (Gup 1980: 31). Sometimes they even invest in securities, collect checks, drafts, notes. Banks are where most transactions are made. In doing this they help both the investors to save, make money and also producers to finance their productions and companies.
Building societies: a mutual financial institution (smaller than banks) which is owned by the members and for the members only. Their original purpose is to help their members...