Editing Financial system (section)

{{Short description|System that allows the transfer of funds}}
{{Refimprove|date=November 2015}}

A '''financial system''' is a system that allows the exchange of funds between [[financial market participants]] such as [[lenders]], [[investor]]s, and [[borrower]]s. Financial systems operate at national and global levels.<ref>{{cite book
  | last1 = O'Sullivan
  | first1 = Arthur
  | author-link = Arthur O'Sullivan (economist)
  | first2 = Steven M. | last2 = Sheffrin
  | title = Economics: Principles in Action
  | url = https://archive.org/details/economicsprincip00osul
  | url-access = limited
  | publisher = Pearson Prentice Hall
  | year = 2003
  | location = Upper Saddle River, New Jersey 07458
  | pages = [https://archive.org/details/economicsprincip00osul/page/n567 551]
  | isbn = 0-13-063085-3}}</ref> Financial institutions consist of complex, closely related services, [[market (economics)|market]]s, and institutions intended to provide an efficient and regular linkage between investors and borrowers.<ref>Gurusamy,
 S. (2008). 
[https://books.google.com/books?id=nPOSoSoRnycC&dq=set+of+complex+and+closely+interconnected+financial+institutions,+markets,+instruments,+services,+practices,+and+transactions&pg=PA3  ''Financial Services and Systems''] 2nd edition, p. 3. Tata McGraw-Hill
 Education. {{ISBN|0-07-015335-3}}</ref>

In other words, financial systems can be known wherever there exists the exchange of a financial medium (money) while there is a reallocation of funds into needy areas (financial markets, business firms, banks) to utilize the potential of ideal money and place it in use to get benefits out of it. This whole mechanism is known as a financial system.

[[Money]], [[Credit (finance)|credit]], and [[finance]] are used as media of exchange in financial systems. They serve as a medium of known value for which [[Good (economics)|goods]] and [[Service (economics)|services]] can be exchanged as an alternative to [[barter]]ing.<ref>{{Cite web|title = Back to Basics: What Is Money? - Finance & Development, September 2012|url = http://www.imf.org/external/pubs/ft/fandd/2012/09/basics.htm|website = www.imf.org|access-date = 2016-01-10}}</ref> A modern financial system may include [[banking|banks]] (public sector or private sector), [[financial market]]s, [[financial instruments]], and [[financial services]]. Financial systems allow funds to be allocated, invested, or moved between economic sectors, and they enable individuals and companies to share the associated risks.<ref>{{Cite book|title = Comparing Financial Systems|url = https://books.google.com/books?id=w6dxLY_RH_oC|publisher = MIT Press|date = 2000-01-01|isbn = 9780262011778|language = en|first1 = Franklin|last1 = Allen|first2 = Douglas|last2 = Gale}}</ref><ref>{{Cite web |title=Financial Systems |url=https://openknowledge.worldbank.org/bitstream/handle/10986/5984/9780195216066_ch04.pdf}}</ref>