The term financial system refers to a network of institutions, markets and infrastructure that facilitates the creation, management, and exchange of money and finance in an economy. This includes banks, insurance companies, pension funds, stock exchanges, investment firms, credit unions, building societies, and other financial intermediaries such as hedge funds and private equity firms. The financial system plays a critical role in the allocation of capital, which is essential for economic growth and development. It also helps individuals and businesses to save, borrow, invest, and protect themselves from risks like unemployment or illness. Overall, the financial system serves as the backbone of modern economies by providing the necessary tools and resources to manage money and finance effectively.