Financial system: Difference between revisions
WikiSysopIG (talk | contribs) Created page with "A '''Financial system''' is a network of financial institutions, financial markets, financial instruments, payment systems, and regulatory frameworks that facilitates the creation, transfer, allocation, and management of financial resources. A simplified representation is: <math> \text{Financial System} = \text{Financial Institutions} + \text{Financial Markets} + \text{Financial Instruments} + \text{Payment Systems} +..." |
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\rightarrow | \rightarrow | ||
\text{Investment} | \text{Investment} | ||
</math> | |||
==Components== | ==Components== | ||
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* [[Commodity market|commodity markets]]. | * [[Commodity market|commodity markets]]. | ||
A simplified representation is: | A simplified representation of their functions is: | ||
<math> | <math> | ||
\text{Financial Markets} | \text{Financial Markets} | ||
\rightarrow | \rightarrow | ||
\text{Issuance} | \begin{cases} | ||
\text{Issuance}\\ | |||
\text{Trading} | \text{Trading}\\ | ||
\text{Price Discovery} | \text{Price Discovery} | ||
\end{cases} | |||
</math> | </math> | ||
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\rightarrow | \rightarrow | ||
\text{Competing Investment Opportunities} | \text{Competing Investment Opportunities} | ||
</math> | |||
Prices, interest rates, expected returns, credit assessments, and other information can influence how capital is allocated. | Prices, interest rates, expected returns, credit assessments, and other information can influence how capital is allocated. | ||
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\text{Interest Rate} | \text{Interest Rate} | ||
\rightarrow | \rightarrow | ||
\text{Cost of Borrowing} | \begin{cases} | ||
\text{Cost of Borrowing}\\ | |||
\text{Return on Lending} | \text{Return on Lending} | ||
\end{math> | \end{cases} | ||
</math> | |||
Changes in interest rates can affect: | Changes in interest rates can affect: | ||
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\text{Financial Regulation} | \text{Financial Regulation} | ||
\rightarrow | \rightarrow | ||
\text{Risk Management} | \begin{cases} | ||
\text{Risk Management}\\ | |||
\text{Market Integrity} | \text{Market Integrity}\\ | ||
\text{Financial Stability} | \text{Financial Stability} | ||
\end{cases} | |||
</math> | </math> | ||
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\rightarrow | \rightarrow | ||
\text{Broader Financial Stress} | \text{Broader Financial Stress} | ||
</math> | |||
[[Systemic risk]] refers to the possibility that such disruptions could impair the functioning of a substantial portion of the financial system. | [[Systemic risk]] refers to the possibility that such disruptions could impair the functioning of a substantial portion of the financial system. | ||