Question

State any four participants in the financial system and explain how they contribute and fit in the financial system

Answer 1

1. Reserve Bank - It is the institution in the financial system which is responsible for money circulation in the system. It can print money for the government, borrows and lends to financial institutions like banks, non-banking financial institutions. The regulations set for all the lending activities in the system are made by Reserve banks.
2. Financial Institutions/ Banks /Non-banking Financial Institutions - These players act as custodians of people's deposits and as the lenders to the general public. They are experts at borrowing at cheaper interest rates through customer deposits or from other sources and lending at higher interest rates to make profits. They are the backbone of the financial system of any country since people rely on banks for their deposits and cash reserves and most importantly as the lender to the businesses.
3. Credit Rating Agency - These players analyse the companies which try to raise funds from the financial markets. These players assess potential borrower's business, profitability, credibility and their cash generation capacity to ensure that there are no defaults on the bonds or other fixed instruments.
4. Stock Exchange Brokers - These players are the backbone for the survival of the financial markets in any country. They facilitate general public and institutions in transacting on stock exchanges through their platforms and charge a fee for the services provided to their customers.