Simply put, the financial system is the accumulation of monetary income and and then distributing it. This can be done by a bank, by the government or even by you, because you too part of the financial system.
You have to understand that some things in economics are very simple to explain. Any financial system deals with revenues and expenditures. Always remember these two simple words-it will help you understand a lot of complicated things. Just as the financial system deals with income and expenses, just just as finances themselves can be spent or purchased (or temporarily acquired).
The financial system is divided into two kinds: centralized and decentralized finances.
Next, we will look at these two types in more detail, but for now we suggest you solve this case study so that you see how the financial system directly affects you and your decisions.
Centralized Finances.
Centralized finances are funds of money designed to support the activities of state and municipal authorities. Accordingly, they are divided into municipal and state finances.
Municipal finances are the basis of economic solvency of municipalities. Each municipality has its own budget, which is called a local budget.
The local budget is money intended for financial support of the functions and tasks of local government.
Let’s take any small town. It is governed by local government (the mayor’s office and the city council), which needs municipal finances to form a local budget. Any town requires a large amount of expenditures, which is only possible when there is the same amount of revenues.
