Discuss the role of a financial system and give examples of financial instruments that are traded within the financial system.

        There is a great role of financial system in boosting the economy of any country, the role can be determined in this wat that it takes money from the saver and give it to the lender like governments business personals etc.  to simply put the financial system sits between those who saves and wants to borrow money. [1]

        Likewise, if we see what are financial instruments, we can say that financial instruments are the assets that can used to trade or something of value that can be transferred from one party to other legally in any future date.

Role of Financial System

As cited above financial system plays an important role but there are four main core functions that it should perform.

Value exchange of Financial System

 a payment making way.

Intermediation of Financial System

shifting resources between borrowers and savers.

Risk transfer of Financial System

it is a method of pricing and defining certain risk.

Liquidity of Financial System

a process of changing possessions into cash without making unnecessary losses. [2]

financial instruments that are traded within the financial system

There many types of financial instruments that are traded in the financial system. Likewise, there are many financial instruments that are customized according to the people needs.  Let’s take a look at some of the most common instruments.

Money exchange in order to pay interest and payment of capital amount. Under this bonds and loans, asset backed securities comes.

Money exchange in order to gather original amount or interest.  In this Stocks that company can sell or funds of all types comes.

Money is exchanged for some sort of Exchanges of money for possible capital gains or to counterbalance risk. In this future and options are used to lower the risk or to generate some capital. Likewise, currency exchange or swap is done to lower the risk.

Money exchange is used in order to get protection against possible risks.  In this insurance are done to not only lower the risk but to cover the loss. [3]

To conclude we can say that financial system plays a great role. Furthermore, if we talk about financial instruments, we can say that it is very important in exchange of money from one sector or person to other person legally under some sort of agreement. Likewise, there are many types of financial tools and purpose of all them is to either lower the risk or to gain some capital in exchange of interest and capital payment.

References of  financial system