I. General (Overview)

• Financial system-is a collection of markets, institutions, laws and regulations and techniques through which bonds, stocks, and other securities traded, interest rates determined, and financial services produced and delivered.

• Financial System encompasses a group of intermediaries which facilitates the flow of funds from the areas of surplus to the areas of deficit. It is composition of various institutions, markets and laws, practices, money managers, analysts, transactions and claims and liabilities. This facilitates the exchange of financial instruments like deposits and loans, corporate stocks and bonds, government bonds etc.

• The financial system of nations might be either bank based financial system, for instance, in the case of Ethiopia or market based financial system in modern economies. In spite of the differences, the primary task of financial systems is to move scarce loanable funds from those who have saved to those who borrow for consumption and investment.