The Financial System

The Securities and Exchange Commission (SEC) in the United States financial system is a regulatory body that monitors the financial system, exchange, and securities market. Securities are types of financial instruments created in financial markets.

The Five Parts to the Financial System

1. Money

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.

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