Financial System and

Economic Development
The financial system of a country is of immense use in its
economic development. The volume and growth of the capital in the
country very much depends upon the efficiency and intensity of the
operations and activities in the financial markets. An immature financial
system hinders the growth of the economy. Financial intermediaries
enhance the investment in the economy through direct and indirect
investments.
Economic development is partially dependent on the financial
system to help mediate the transfer of money to areas of the economy
that need it most. The financial system has a number of key functions,
which help facilitate these shifts in money that are important for
sustainable economic growth and development.
I. Investments.
The financial system also facilitates the transfer of money
from investors to businesses. When businesses raise capital,
they sell stock to investors. Investors give their money to the
company in exchange for ownership in the company.

II. Savings.
The financial system allows you to place your excess money
into a savings account in a bank of your choice. Keeping your
money in a bank safeguards your savings, and the bank pays
you interest based on the amount you keep in your account.

III. Business Growth.
Businesses may expand their operations or finance growth
by issuing debt instruments called bonds. Bonds are bought
and sold through the financial system. Bond markets allow
businesses to access investor capital to finance their growth,
while bond investors have an opportunity to profit from
helping finance business expansion.

IV. Loans.
Money in deposit accounts, like savings accounts, is used to
provide loans for a wide range of projects to people and
businesses. Mortgages, car loans and student loans are
financed largely by deposits in banks, savings institutions
and credit unions.

V. Government Expenditure.
Governments may finance programs or deficit spending
through the financial system by issuing bonds to raise
money. Investors may buy government bonds to own a part
of government debt, and collect interest payments from the
government. In turn, the government has the money it
needs to continue to function.