Question

Discuss the difference between a bank-based and a market-based financial system, and state whether the financial systems of developing countries are generally characterised as bank-based or market-based

Answer 1

Bank based financial system is a traditional financial system in which the banks are the central focus of management of the economy and it will act as a intermediary between the savers and the the borrowers to facilitate the money flow into the economy and investment into the banking structure . Monetary policy only formulated after taking consideration of various banks in the economy

Market based financial system is a new and sophisticated way of financial system in which share market share a central state with the bank and they are also used as a method for investment and along with bank and monetary policies are formulated in order with keeping stock market interested with the economy.

Financial systems of developing countries are now Market Based financial systems because they have attracted a lot of investment from their domestic sector and they are also helping their investment through share market and their monetary policies are also formulated with regards to the share market so they can be said to be market based financial systemsystem