Answer to Question #286679 in Finance for Lou

Question

Question 1

Discuss what a financial system is and the key role that any financial system plays in an economy. What are the main reasons for regulating financial institutions and how do the regulators do this?.

General guide :

Work should be at least 4 pages excluding the title page and references.

50marks

Answer 1

A financial system is a set of institutions, such as banks, insurance companies, and stock exchanges, that permit the exchange of funds. Financial systems exist on firm, regional, and global levels. Borrowers, lenders, and investors exchange current funds to finance projects, either for consumption or productive investments, and to pursue a return on their financial assets. The financial system also includes sets of rules and practices that borrowers and lenders use to decide which projects get financed, who finances projects, and terms of financial deals.

A financial system is an economic arrangement wherein financial institutions facilitate the transfer of funds and assets between borrowers, lenders, and investors. Its goal is to efficiently distribute economic resources to promote economic growth and generate a return on investment for market participants.