The Purpose Of A Financial System
The role of the financial system, that is financial institutions and markets
, is to facilitate the flow and efficient allocation of funds throughout the economy and help create best forex trading markets.
The greater is the flow of funds, the greater the combination of individuals preferences for spending and saving. Inefficient and sound financial system is a necessary condition to having a highly advanced economy like our current modern nations.
Essentially a financial system is driven by lenders and borrowers. Lenders in the simplest theory are considered the individuals who have saved their money. That is they conserved their purchasing power and now have this extra power to lend to individuals who would like to borrow some. The borrower pays for this privilege through a claim on future income i.e. interest payments. This is known as direct financing in the financial markets. An important characteristic of the direct financial market is that it is a wholesale market, where the minimum transaction or financial claim to (denomination) is regulated by the financial system.
The simplest method of transferring funds between a lender and borrower is private placement. Here the borrower such as a corporation, cells in entire security issue to a single institutional investor or small group of such investors. The advantage of a private placement is the speed with which funds can be committed and the low transaction cost of bringing the securities market. Investment banker usually assist in private placements, and charges a fee for helping to design the places securities as well as provide forex trading tips.
This type of lending is the realm of investment bankers. They are the individuals who examine the financial engines of such corporations and determines the likelihood that they are able to pay back the principal to which they are borrowing. A savvy financial or investment banker can seek out qualified investors to wish to lend principal to promising corporations. This is how a corporation can finance future endeavors that it would otherwise not be able to do without the capital.
by: Rhab Hendrik
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