A Financial System is a set of institutions, such as banks, insurance companies, and stock exchanges, that permit the exchange of funds. It can be thought of as a network through which money and other assets move. The purpose of a financial system is to provide liquidity—the ability to turn assets into cash quickly—and to channel savings into productive investments.The most important part of any financial system is the banking sector. Banks are intermediaries between lenders and borrowers. They take in deposits from people who have saved money and want to earn interest on it, and they make loans to businesses and consumers who need financing for new projects or purchases. Banks also play an important role in the payments system: they process transactions between businesses and consumers by transferring funds from one account to another.
