Financial system

A financial system is a system that enables payment flows between participants of the system.

A financial system can be considered at different levels, from an economic perspective on the global, national and regional level and from a microeconomic point of view usually at the level of a company.

The essential elements of a financial system are typically individuals, households, departments, divisions, companies, governments and supranational organizations, which cause each other cash flows. Just include economy-wide level specialized governmental and private institutions in the financial sector to act on a microeconomic level, the specialist in a company finance departments. Supervising and regulating state institutions as well as corporate departments are usually responsible, as part of the system.

For the financial sector around again include all institutions and systems that provide financial benefits for an economy. These include in particular financial markets (money market, capital market and foreign exchange market ) and financial intermediaries (banks, insurance companies, etc. ) The main functions of the financial sector are the functions of money, the steering function ( allocation function ), ie the mediation and coordination of financial resources flow between lenders ( creditors) and borrowers (debtors) and the insurance function ( diversification function ), ie the reduction of risk associated with the provision of financial resources.

Significant governmental institutions in the financial system are central banks, supranational banks (eg the World Bank, international development banks with a regional activity, the Bank for International Settlements ), the International Monetary Fund and various regulatory agencies (eg, the Federal Financial Supervisory Authority ).

Emergence of financial systems

The emergence of financial systems is closely linked to the history of money. Take monetary economic developments and relationships of actors independent patterns and structures, so one can speak of a financial system. These structures may be limited nationally or globally oriented.

Financial systems are an essential tool for social organization of the distribution of the assets, values ​​and wealth. The organization of the distribution of social wealth ( Free Market, alms system, privileged and uniform distribution ) falls history ( Ancient, Medieval, Modern ) and culturally ( West, Western industrial nations, Islam) as well as on the particular social order ( theocracy, caste system, Stands economy, capitalism, socialism, Fascism, colonial system, communitarianism, welfare state, welfare state, etc.) and their ideas very different from a "fair " distribution. Major differences exist in the question of the admissibility of interest, forms of trade, taxation, distribution and design for social affiliation and the approval and exclusion of actors.

Function of the financial system

Steering function ( allocation function )

The financial system coordinates the flow of funds from lenders to borrowers. Lenders are, for example, households that are in the wealth accumulation phase and not consume all their current income. With the savings made ​​can later make major purchases or save for retirement and be operated. Borrowers are for example companies, investment finance, private households who finance a home or consumer desires, or authorities, which have to balance a budget deficit through debt. About the price, to be paid for the temporary provision of financial resources, the savings are directed to those uses that promise the largest expected real return.

Insurance function ( diversification function)

Instead of investing all their savings into individual projects, lenders can invest their savings in many different uses, so that they can benefit from the ideas and the productivity of others and not be taken as strong of negative developments in individual sectors or regions. In turn benefit both lenders and borrowers from risk reduction. Lenders are usually assumed as risk averse, ie they prefer with the same expected return safe investments ( with less dispersion of results) against uncertain. Risk-averse investors put their savings for risky projects only available if they are rewarded with a corresponding risk premium for the assumption of risk. Now can be explained by the distribution of savings in many uses reduce the average risk, then the risk premiums are lower.

Structure of the financial system

A well-functioning financial system is crucial for the development and growth of an economy. It is empirically well established that the availability of financial resources for private borrower has a positive impact on the average real per capita income of a country. The availability of financing stimulates investment and technological progress. In addition to the mere availability of financing, however, is the efficiency of the financial system of meaning.

However, controversy is the ideal form of organization of a financial system. The financial systems of developed countries sometimes differ significantly in their design. While the U.S. and the UK a greater importance of the capital market have ( capital market -based financial systems ), Germany and Japan rely to a greater extent on financial intermediaries ( bank -based financial systems). The advantages of bank- based systems, the good monitoring options are mentioned, arising from the relatively close relationship between borrowers and banks. Through this can corporate governance problems that are based on asymmetric information, be solved more effectively than many creditors. In addition, includes a bank relationship better options with one, to support a borrower about bad times away. In contrast, consists of a bank- based system, the danger of abuse of power of the banks that are not subject to the control of power, for example, by a collusion between borrowers and banks will take place to the detriment of shareholders and / or the public.

Internationalization of financial trading

The totality of the national financial Systemene and their interaction is also referred to as the global ( international ) financial system. Also, here come Nations as an international creditor and debtor.

Since about 1980 we have observed a growing international integration of financial trading. International financial trading takes place, for example, if a private investor from the USA German bonds business or if a German bank buys Russian government bonds. Financial integration can be measured by various criteria. The volume of cross-border securities transactions ( fixed income securities and equities) between the U.S., Germany and Japan, for example, from an average of 15 percent of their GDP has risen to nearly 600 percent in the years 1995-2000 in the years 1975-79. Since 1990, even the capital flows from developed countries to emerging and developing countries have increased significantly, but the vast majority of financial transactions will still take place between the industrialized countries. Significantly, the increase in the importance of international financial transactions also in the relationship between global foreign exchange and export sales. 1979 had the world's currency sales volume of 17.5 billion dollars, while world exports had a circumference of 1.5 trillion dollars. This corresponded to a ratio of 12:1. In 1998, this ratio was 69:1 ( Forex: $ 372 trillion, exports: 5.4 billion dollars ). However, the intra-national trade in goods and financial markets is today still much more important than international trade.

Entrepreneurs with profitable projects can borrow abroad if the domestic savings is not large enough to supply all profitable investment projects in the country with capital. The latter is to be expected theoretically for Emerging and developing countries. There, the productivity of additional capital is especially high because there are public infrastructure and the private real capital stock at relatively low levels.

An actor in the global financial system, the International Monetary Fund ( IMF). The IMF following tasks will be written to: promote international cooperation in monetary policy, expansion of world trade, stabilization of exchange rates, lending, monitoring of monetary policy, technical assistance.

Control and access to information

For the control of the financial sector, the Financial Services is responsible in the FRG. In the FRG is the Federal Financial Supervisory Authority ( BaFin). To what extent are granted the right to access to records, regulates the Freedom of Information Act of the State (IFG ) and the Banking Act.