1.

Intermediation: Financial intermediaries act as intermediaries between savers and

borrowers. They collect funds from individuals, businesses, and other entities with excess
funds and channel those funds to borrowers who need capital for various purposes, such as
investment or consumption. By efficiently matching the needs of borrowers with the
preferences of savers, intermediaries help allocate capital in the economy. 2. Risk
Transformation: Financial intermediaries help transform and manage risks. They collect
funds from savers and diversify those funds across a portfolio of assets, such as loans,
bonds, or securities. This diversification helps spread and mitigate risks associated with
individual investments. Intermediaries also use their expertise to assess the creditworthiness
of borrowers and manage credit risks. 3. Liquidity Provision: Financial intermediaries provide
liquidity to the economy. They offer various types of deposit accounts, such as checking and
services. • Capital Account Convertibility: Governments may gradually ease restrictions on
capital flows, allowing more freedom for cross-border transactions and investments. This
helps integrate domestic banks into the global financial system and promotes international
competitiveness. 3. Prudential Regulation and Supervision: • Strengthening Regulatory
Framework: Authorities enhance regulations and prudential norms to improve risk
management, corporate governance, and transparency in the banking sector. This may
include introducing stricter capital adequacy requirements (such as Basel III), risk-based
supervision, and robust accounting and reporting standards. • Supervisory Framework:
Authorities establish or strengthen regulatory bodies responsible for overseeing banks and
enforcing compliance. This includes enhancing the capacity, independence, and
effectiveness of banking supervisors to ensure the soundness and stability of the banking
system. • Resolution Mechanisms: Governments may establish or strengthen frameworks for
bank resolution and crisis management. This involves developing mechanisms to handle
distressed banks, including procedures for orderly liquidation, recapitalization, or
restructuring, while minimizing disruptions to financial stability. 4. Strengthening Market
Discipline and Consumer Protection: • Market Discipline: Measures are implemented to
promote market discipline and encourage banks to adopt prudent practices. This includes
enhancing disclosure requirements, strengthening risk management practices, and
encouraging greater transparency in bank operations. • Consumer Protection: Reforms may
focus on improving consumer rights, disclosures, and complaint handling mechanisms to
ensure fair treatment and better customer outcomes. Authorities may establish dedicated
bodies or agencies to address consumer grievances and enforce consumer protection
regulations. 5. Consolidation and Restructuring: • Merger and Acquisition: Governments may
encourage consolidation in the banking sector through mergers and acquisitions. This aims
to create stronger and more efficient banks, reduce fragmentation, and enhance economies
of scale. • Recapitalization: Authorities may facilitate capital infusion into weak banks to
improve their financial health and ensure their viability. This can be done through
government injections, private investments, or asset purchases. • Restructuring: Troubled
banks may undergo restructuring programs, involving the disposal of non-performing assets,
the improvement of risk management systems, and operational efficiency measures. Unit-2
Money market concept, role and importance and it's functions The money market refers to a
segment of the financial market where short-term borrowing and lending of funds take place.
It deals with instruments that have a maturity of up to one year. The money market serves as
a platform for financial institutions, governments, and corporations to manage their
short-term liquidity needs and invest excess funds. It plays a vital role in the overall
functioning of the economy. Here are the main concepts, roles, importance, and functions of
the money market: Concept of Money Market: The money market comprises various
instruments, such as Treasury bills, commercial paper, certificates of deposit, repurchase
agreements (repos), and short-term government bonds. These instruments are highly liquid
and low-risk, providing a means for participants to borrow or lend funds on a short-term
basis. Roles and Importance of Money Market: 1. Liquidity Management: The money market
allows participants to manage their short-term liquidity needs efficiently. Financial institutions,
corporations, and governments can invest excess funds in money market instruments, which
can be easily converted into cash when required. 2. Short-term Financing: The money
market serves as a vital source of short-term financing for corporations and governments.
They can issue money marke