A financial system includes components like financial instruments , markets and financial institution .The financial market operations very essential for the healthy economic growth.The each country's development and growth lies on the factor regarding the financial system operation of that particular country which is closely connected.The financial system acts like an intermediary between various financial parties like investor,institutions,savers etc..and the financial system includes various rules and regulation for the successful conduct of financial system with their parties involved in this. Mainly financial system has four components given below:
1) financial institution
2) financial market
3) financial asset/ instruments
4)financial services.
Mainly banking and non banking financial institutions are mainly included in the financial institutions banking which is central portion of every economy in the present scenario .so the operations of banking industry is very importent in each countries growth and development.and non banking financial institution like IFCI ,SIDCO etc..are mainly depend for the requirement of finance.
In the financial market it's mainly organised and unorganised markets. The organised market components are very importent for the better leading tool for the economy i,e. Capital market and money market.capital market is mainly have primary market and also secondary market. The primary market is deals with the initial public offering of securities and secondary market the buying and selling of securities through various stock exchange so the stock exchange and the economical activities are closely linked with each other. The finacial assets like shares ,debentures,money market instrument like commercial papers etc..are closely linked with financial system. Finally the fund based and fee based financial services also a part of financial system.
The economic performance of every country is closely connected with the financial system.Economic growth and development creates demands for particular types of financial arrangements, and the financial system responds automatically to these demands.and also a well optimum form a financial system lead to a combination and connection with the other economical and legal and political and other factors of a country.Financing through financial intermediaries is an effective solution to adverse selection and moral hazard problems that exist between lenders and borrowers.The financial system very importent one to reallocation and optimum utilisation of financial resources.