What is Financial System definition/concept

The Financial System involves those public or private bodies, where the greatest exponent are the banks, as they provide investment tools to people in a society through loans and, in this way, they obtain benefits from it. Therefore, those who resort to these modalities should carefully study and analyze the options offered in order to be able to assume the commitment. The financial system is one of the major players in the functioning of a society with a direct impact on the internal market, and for this reason, its way of proceeding or operating is sometimes questioned, as was the collapse in the markets of the United States and the world between 2008 and 2014.

In a market economy, the financial system is extremely important as it captures investment and channels it towards concrete investments that have a positive impact on the real economy. It is also important to offer investors a variety of financial instruments so that they can choose the best option and meet their needs.

The financial system offers several financial assets that can be used as an investment for those who wish to acquire (although it constitutes a liability for issuers). This contributes positively to the generation of wealth in a country, although they are not accounted for. There are three characteristics that are extremely important at the time of assessment: liquidity, risk and profitability . Financial System

Liquidity shows how easily an asset is converted to cash. The most liquid asset is cash, whether physical or as a cash deposit. Thus, The main feature of a liquid asset is the ability to sell quickly with little loss of value and at any time.

The risk is the possibility of having losses in value for the considered assets. It involves a debt as the interest rate increases and its greatest risk is the expected return. Financial System

And finally, profitability is the percentage of expected profit in relation to invested capital. As stated, if the risk taken is greater, the profit is expected to increase as well. This is why countries with a high possibility of not meeting their responsibilities have to pay more interest and, basically, more profit is expected from their loan.

The financial system offers investors many opportunities, but care must be taken when operating in this area, as many of its options are risky for a person who lacks the knowledge to consciously assess the different scenarios that can happen. That’s why it is customary to hire professional operators who know the complexities of the system in greater detail.

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