The Five Parts to the Financial System
Money is used as a medium to buy goods & services. It also is a standard unit of measurement and acts as a store of value. However, money may not be a good store of value since it loses value with inflation.
2. Financial Instruments
Financial Instruments are formal obligations that entitle one party to receive payments or a share of assets from another party. Examples of tradable financial instruments include loans, stocks, bonds.
3. Financial Markets
A Financial Market is a place or network where financial instruments can be sold quickly & cheaply.
4. Financial Institutions
Financial Institutions are firms that connect borrowers and lenders, provide savers and borrowers access to financial instruments & markets. There are two types of Financial Markets – the primary market and the secondary market.
5. Central Banks
Central Banks are large financial institutions that handle government finances, they regulate the supply of money, and they serve as banks to commercial banks.