What is financial system in sri lanka

Financial system operate at national and global levels.They consist of complex,closely related services,market and institutions intended to provide an efficient and regular linkage between investors and depositors.Money,credit,and finance are used as medium of exchange in financial system.Financial system mainly categorize as

• Financial Assets
• Financial Markets
• Financial Intermediaries 

Financial intermediation

The process performed by banks of taking in funds from a depositor and then lending them out to a borrower. The banking business thrives on the financial intermediation abilities of financial institutions that allow them to lend out money at relatively high rates of interest while receiving money on deposit at relatively low rates of interest.

Example of Financial intermediaries

• Insurance companies.if you have risky investment
• Financial advisers.A financial adviser does not directly lend or barrow of you
• credit union.credit union are informal types of banks which provide facilities for lending and depositing within a particular community.
• Mutual funds/Investment trust

Roles of financial intermediaries 

This transformation involves four basic economic function.then,

1. Maturity intermediation
2. Risk reduction and diversification
3. Reducing the costs of contracting and information processing
4. Providing a payment mechanism

Benefit  of financial intermediation

Cost reduction

       Financial intermediaries collect information on behalf of savers so that they will not have to incur these direct and opportunity costs.

Economies of scale

          Reducing the average cost of fund management by pooling saving and spreading management costs across many people.

International financial diversification

         spreading portfolio risk by holding both u.s-issued and foreign-issued financial instruments.