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KembaraXtra – Islamic Derivatives: Do Banking and Capital Markets Both Belong to the Financial System?
🔹 Short Answer
👉 Yes, both banking and capital markets are part of the financial system ✅
🔹 1. What is the Financial System?
👉 The financial system is the overall structure that:
- Moves money from savers (surplus units)
- To borrowers/investors (deficit units)
✔ Supports economic activity
🔹 2. Main Components of the Financial System
✔ 1. Banking System (Money Market Side)
- Deals with:
- Deposits
- Loans
- Focus: short-term financing
✔ 2. Capital Market
- Deals with:
- Shares
- Sukuk/Bonds
- Derivatives
- Focus: long-term financing
🔹 3. Key Difference (Important)
- Banking:
- Intermediary (bank stands in between)
- Short-term funds
- Capital Market:
- Direct financing (investor → company)
- Long-term funds
🔹 4. Simple Structure
👉 Financial System includes:
- Banking (money market)
- Capital market
✔ Both work together
🔹 5. Example
- You deposit money in bank → bank lends it
- You buy shares → company uses your money
👉 Both activities:
✔ Move funds in the economy
🔹 Simple Summary
- Financial system = big system
- Banking + Capital market = two main parts
🔹 Final Exam Insight
👉 “Both banking and capital markets are integral components of the financial system, with banking facilitating short-term intermediation and capital markets enabling long-term investment and financing.”
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