The
financial system is a mechanism for transferring fund from one unit to other
unit. There exist two unit in financial system. They are:
(1)Surplus unit: It is the household sector. There prevails excess amount of money
(2)Deficit unit: It is business sector. This sector always needs of fund
(3)Financial intermediaries: Financial intermediaries are those via in a financial system which transfer fund from surplus sector as a loan in the deficit sector. Financial intermediaries includes: Bank, Financial institutions.
(1)Surplus unit: It is the household sector. There prevails excess amount of money
(2)Deficit unit: It is business sector. This sector always needs of fund
(3)Financial intermediaries: Financial intermediaries are those via in a financial system which transfer fund from surplus sector as a loan in the deficit sector. Financial intermediaries includes: Bank, Financial institutions.
From
the above diagram we can see that the financial intermediaries firstly collect
funds from the surplus unit as deposit and then they provides loan to the
deficit sector. From the deficit sector the profit again goes to the surplus
sector in the case of buying goods or services. The profit portion again goes
to the financial intermediaries as a saving then again the financial
intermediaries transfer the fund to the deficit sector as a loan. This process
replies back in forth.
