The Six Parts Of The Financial System


the six parts of the financial system

(All of the information written below is a part of chapter 1 in the book: Money, Banking, and Financial Markets Fourth Edition

Our financial system is complicated that most people can't understand; we see that prices are rising, but we don't know why; we hear so many terms that we know nothing about.

Our financial life is a mess as we lack financial knowledge!


The financial system has SIX MAJOR PARTS, each of which plays a fundamental role in our economy.

Those parts are Money, Financial Instruments, Financial Markets, Financial Institutions, Regulatory Agencies, Central Banks

We use Money to pay our purchases, expenses and also to store our wealth.

We use Financial Instruments to transfer resources from savers to investors, and to transfer risk to those who are best equipped to bear it. (Examples are: Stocks, Mortgages, and insurance policies, they're all examples of financial instruments)

Financial Markets allows us to buy and sell financial instruments quickly and cheaply. (New York Stock Exchange is considered one of the largest financial markets)

The fourth part of the financial system is Financial Institutions, and they provide plenty of services, including access to the financial markets and collection of information about prospective borrowers to ensure they are creditworthy (Banks, securities firms, and insurance companies all are examples of financial institutions)

The Regulatory Agencies form the fifth part of the financial system, and they are responsible for making sure that all the elements of the financial system (including its instruments, markets, and institutions operate safely and reliably.

The last piece of our financial system; Central Banks
and they are responsible for monitoring and stabilizing the economy (just like the Federal Reserve System in the united states)

These six parts of the financial system perform the essential functions, even if it had a different shape after a while; for example, money was once silver and gold, but today it's more like Bitcoin and Ethereum. Still, money has the same function and uses!

You cannot progress in life without financial education; if you don't understand the system that rules money, how can you become wealthy?

You have to know that wealth is not an incident; it's a process, a long one in fact

The next articles will dive more into how our financial system works, also we'll reveal five core principles of money and banking that are life-changing, they will drastically change the way you look at money, time, risk, and everything, stay with us.

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