A financial system is a set of institutions, such as banks, brokerage firms, and stock exchanges, that allow the exchange of funds between financial market participants such as investors, lenders, and borrowers. Financial systems exist on local, regional, and global levels, and include rules and practices that borrowers and lenders use to decide which projects get financed, who finances projects, and terms of financial deals. Financial systems are often strictly regulated because they directly influence decisions over real assets, economic performance, and consumer protection.
Financial markets allow investors and borrowers to exchange different financial assets, like Bank Deposits, Loans, Stocks, and Bonds. Financial markets create equity and debt securities products that provide a return for investors or lenders and make these funds available to borrowers who need additional money:
- Equity securities like common or preferred stock provide ownership rights while
- Debt securities such as government and corporate bonds, or certificates of deposit are essentially loans that are repaid.
Central Banks are critical to the stability and access of financial markets within society. They operate as independent entities from their governments to regulate monetary policy, and are the most influential financial institutions in the world. They operate with a main objective of controlling the money supply and creating stable prices through monetary policy such as changing interest rates to influence prices across markets.
The United States central bank is the Federal Reserve System. The Federal Reserve System is made up of 12 Federal Reserve Banks, and is responsible for accepting and making payments on behalf of the Treasury Department. The Federal Reserve will also purchase Treasuries, which are bonds issued by the federal government. The Federal Reserve conducts its daily operations through a group called the Federal Open Market Committee (FOMC).
Brokerage firms are another type of financial intermediary, which provide access to individuals and companies that are interested in buying and selling securities such as stocks, bonds, and mutual funds. Brokerage firms connect investors to large stock markets. Brokerage firms have different characteristics based on how they are licensed, who they affiliate with, and if they are a private or public firm.
Stock Exchanges are marketplaces where investors can buy and sell equities. Brokerage firms interact directly with stock exchanges on behalf of investors. There are many stock exchanges around the world, and the largest includes:
- New York Stock Exchange
- Tokyo Stock Exchange
- London Stock Exchange
- Shanghai Stock Exchange
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At Morgan Franklin Fellowship (MFF), we support the concept of financial freedom – by teaching participants how to save by paying themselves first, invest for their future and grow their net worth.
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Our Standards of Financial Literacy – Learning about money series is engaging, full of interesting information, and easy to navigate. Adapted from the National Standards for Personal Financial Education developed by the Council for Economic Education (CEE), this robust curriculum features six short lessons on such important topics as earning income, understanding the value of saving and using credit. When completed, this program lays the foundation for becoming an MFF Fellow.
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