Economics, Strategic and Financial Management Blog

Basic needs served by the Financial System We defined the financial system earlier as a set of arrangement of financial institutions, markets   and instruments for mobilizing   the resources.  Let us illustrate how it serves the basic needs of an economy   by a hypothetical example. A business graduate is running a wholesale store of fancy goods in Kathmandu. He imports the goods from abroad and distributes them in various parts of Nepal. In the course of his business he faces the problem of receiving payments from its customers located in remote areas where modern banking facilities are not available.  His payments are delayed and he has not insured more cost for receiving the payments from those places.  Sometimes, he has to face the problem of theft in transit and other hazards.  He (the wholesaler) also has to bear the adverse effect if retailers meet such will fate in  the  course  of  their  business. Moreover, he becomes very anxious about the fluctuation in the fo

Many financial institutions like Nepal Bank Ltd., Bank of Kathmandu Limited, Annapurna Finance Company, Universal Finance Ltd., Nepal Insurance Company Ltd., Rastriya Beema Sansthan and so on are being operated in Nepal. These institutions basically fall into two categories. Institutions falling in first categories such as banks and finance companies, trade in money and others such insurance companies, trade in risk. First category of institutions collects deposits from surplus units and lends to the deficit units. Surplus units may be individuals, business firms, government and non-government office and similarly some of the individuals, business firms, government and non-governmental offices may   be deficit units. Thus, these institutions- banks and finance companies, transfer the resources from surplus units to deficit units. In addition to these institutions facilitate the trade in transfer of money and making payment Second category of institutions trade in risk and protect