A financial system (within the scope of finance) is a system that allows the
exchange of funds between lenders, investors, and borrowers. Financial
systems operate at national, global, and firm-specific levels.[1] They consist of
complex, closely related services, markets, and institutions intended to
provide an efficient and regular linkage between investors and depositors.[2]
Money, credit, and finance are used as media of exchange in financial
systems. They serve as a medium of known value for
which goods and services can be exchanged as an alternative to bartering.
[3]
A modern financial system may include banks (operated by the
government or private sector), financial markets, financial instruments,
and financial services. Financial systems allow funds to be allocated,
invested, or moved between economic sectors. They enable individuals and
companies to share the associated risks.[4]
The global financial system is the worldwide framework of legal agreements,
institutions, and economic factors that together facilitate international flows
of financial capital.
The global financial system has evolved substantially since its emergence in
the late 19th century during the first modern wave of economic globalization,
marked by the establishment of central banks, multilateral treaties, and
intergovernmental organizations aimed at improving the transparency,
regulation, and effectiveness of international markets.
transfers.
Since the Great Depression, regulators and their economic advisers of the
global financial system have been aware that economic and financial crises
can spread rapidly from country to country with serious economic
consequences. For many decades, that awareness led governments to
impose strict controls over the activities and conduct of banks and other
credit agencies. After WWII, the international inter-connectedness of the
financial markets led to creation of an international financial system with the
characteristic known in control theory as complexity.
International lobbying firms play a role in the global financial system, as they
increasingly develop cross-border lobbying arms to influence international
negotiations. For example, Podesta Group, a Washington lobbying firm,
times of financial turmoil in an economy. Different levels of risk come attached with
different
categories
of
asset
classes.
For example, a fixed deposit is considered a less risky investment. On the other hand,
investment in equity is considered a risky venture. While practicing risk management,
equity investors and fund managers tend to diversify their portfolio so as to minimize the
exposure to risk.