International financial system

 

Introduction


Generally a financial system is the system that makes the provisions of transfer of

money between those who want to invest and those who want to borrow. The system can be defined at micro level comprising a single firm or economic unit or it can be defined at macro level comprising global financial institutions or countries.

            The international financial system refers to a framework of legal agreements,

institutions, economic actors, that together facilitate the international flow of financial

resources for the purpose of investments and trade requirements. In other words it is the framework within which countries borrow, lend, buy, sell and make payments across different regions. The International financial system is the Structure within which foreign exchange rates are determined, International trade and capital flows are accommodated and

Balance of payment adjustments are made. All of the instruments, instructions and agreements that link together the world's currency, money market, securities and commodity market are also encompassed within the financial system. The system originated in 19" century with the establishment of central banks, multilateral treaties and intergovernmental

organisations to improve the transparency, regulations and effectiveness of international markets of financing and trading. 


Meaning of international financial system


The international financial system constitutes a full range of risk and return bearing assets, bank and non bank financial institutions, financial markets to determine the prices of these assets through demand and supply forces, and the non market activities through which

the trading of these assets takes place. Thus, a Financial system is the combination of there five main parts or components.

 

Components of international financial system

               1.money

                  2.Financial instrument

                  3. Financial market

                  4.Financial institutions

                   5. Central Banks 



1.Money 

                

          Money is defined as everything that is accepted as consideration for delivery of goods and services or the repayment of death 



2.Financial instrument


       A financial Instrument is a tradable asset or a document including a check, draft, bond, share, bill of exchange, futures or options contract that has a monetary value or represents a legally enforceable agreement between two of more parties regarding a right to payment of money. The financial instrument can be cash

instrument or a derivative instrument

                       


3. Financial market

             In simple words financial market is a market in which financial which people can easily buy and sell financial instruments or commodities at a price assets can be purchased or sold. Financial market is market that provides mechanism determined by market forces of demand and supply. For example, Bombay Stock Exchange New York Stock exchange etc. the participants who provide funds to the market are called surplus units and the participants who borrow the funds from the market are called defici units. Financial markets can either be money markets or capital markets


 4. Financial institutions

In simple words a financial institution is an institution that provides financial services. The most important financial service provided by financial institutions is to act as financial intermediaries. While the International financial institutions (IFIS) are financial institutions that have been established by more than one country, and are subjects to international law. Their owners or shareholders are generali

national governments, although other international institutions and other organizations can also become shareholders of these institutions in principle. 


5.central banks

 In simple words central bank is a financial entity responsible for overseeing the monetary system for a nation. According to business dictionary, a central bank

is an autonomous or semi-autonomous organization entrusted by a government

to, administer certain key monetary functions, such such as to (1) issue, manage, and

preserve value of the country's currency, (2) regulate the amount of money supply

(3) supervise the operations of commercial banks, (4) and serve as a banker's bank and the

local lender of last resort'. In addition the central bank also usually oversees the commercial banking system of their respective countries