The financial system refers to the complex network of institutions, markets, regulations, and intermediaries that facilitate the flow of money, capital, and financial instruments in an economy. It plays a crucial role in the functioning of modern economies by serving various functions, including the allocation of resources, risk management, and the facilitation of economic transactions.

Key components of the financial system include:

Financial Institutions: These include banks, credit unions, insurance companies, and other entities that provide financial services. Banks, in particular, play a central role in the financial system by accepting deposits, providing loans, and offering various financial products and services.

Financial Markets: Financial markets are platforms where individuals, businesses, and governments can buy and sell financial assets such as stocks, bonds, commodities, and currencies. Examples include stock exchanges and bond markets.

Financial Instruments: Financial instruments are tradable assets that represent a financial claim. Common examples include stocks, bonds, derivatives, and certificates of deposit.