Chapter 15

Financial System and Development

In this chapter, the relationship between the financial system and the development of a
country will be discussed.

The growth and development of a country is mainly dependent on the economic

development of the country in a certain amount of time. The economic growth is concerned with
the production and investment and the capacity of the gross domestic product of a country. And
when these factors evolve, the individuals can now feel the development through the standard of
living which is the economic development.

The financial system plays a vital role in the economic development of a country. It helps
in restraining the assets of the country by securing it through investments. It also aid the flow of
the funds from the members of the community to the business firms to use in wealth creation and
development of both the parties. In addition to that, the financial system of the country is
involved with the disbursement of savings, funds provision, facilitating the financial transactions,
developing the financial markets, provision of legal financial framework and provision of
financial and advisory services in a certain country. A financial system is composed of financial
institutions, financial services, financial markets and financial instruments. These components
are closely related and function in affiliation with others.

In regards with the financial system, there are certain roles for it to be properly working.
First is the savings-investment relationship. To achieve the desired economic development, a
country needs more investment and production. The financial system makes sure to induce the
public to save through offering interest rates. And the accumulated savings are organized to offer
for loan to various business firms that are concerned with production. Second, it helps in
infrastructure and growth. It plays a crucial role by providing the means of for the enhancement
of the infrastructure industries. Because a country that wants to achieve development, they are
dependent on the infrastructure facilities. More funds for infrastructure means that there will be
development. Third is that they help in development of trade. The financial system helps
promote the products in domestic and foreign commerce. The exchange earned by the foreign
country is mainly from the existence of the financial system. Furthermore, it helps in
employment growth. The system develops more employment in a certain country. A component
of financial system called money market supplies working capital for businessmen,
entrepreneurs, and manufacturers that are resulting in increase of production process that are
brought about in developing employment opportunities.

In conclusion, the desired goal which is an economic development can be achieved by

having a financial system that will function and work properly. Not only to help the country and
attain development but to also help other countries through trading.