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Introduction
Overview of Financial System
The financial system is defined as set of financial markets and financial institutions that enable the flow of funds from the lender (surplus unit) to the borrower (deficit units) (Cargill, 1991; Valentine et al, 2003). Generally, the financial institutions and markets that exist today in most countries are similar in functions while it may be differ in terms of structure or level of regulation by the authorities (Viney & McGrath, 2000).
In financial system, mainly there are two main markets namely the capital market and money market. The capital market are set up for investments and borrowings in a long term usually over one year or known as a long term market, whereas the money market deals with all short term funds, usually less than a year or short term markets (Valentine et al, 2003; Viney & McGrath, 2000; Rose, 2000). Within those markets, there are primary and secondary market as well as the foreign exchange market and the derivative market, which deals with both short and long term funds. The financial institutions play role as intermediaries between the lender and the borrower in the system (Rose, 2000). The institutions also offer financial products and services to the public.
The financial system in most countries plays an important role for the economy of the countries. It promotes and allocates savings mainly from lender to borrower, which means it enable, the efficient uses of funds by the users. Which indirectly affects investment level by allocating those funds to the investors and ultimately it also helps in assisting the implementation of government or regulatory policy that eventually effect economic growth (Viney & McGrath, 2000).
Overview of financial regulation
Financial regulation is an act to which a government or a non-government organization regulates the financial sector. It subjects the financial sectors to guidelines chose main objective is to...