y WHAT IS A FINANCIAL SYSTEM?

Transfer of Financial resources from Savers to Borrowers

FUNCTIONS OF THE FINANCIAL SYSTEM

It provides a payment system for the exchange of goods

and services. It enables the pooling of funds for undertaking large scale enterprises. It provides a mechanism for spatial and temporal transfer of resources. It provides a way for managing uncertainty and controlling risk. It generates information that helps in coordinating decentralised decision making

The Financial System

Funds Deposits/Securities
Financial Institutions

Funds Loans

Supply of Funds

Securities

Securities

Demand for Funds

Funds

Financial Markets

Funds

INDIAN FINANCIAL SYSTEM

y FINANCIAL INSTITUTIONS y FINANCIAL MARKETS y FINANCIAL INSTRUMENTS y FINANCIAL SERVICES

Financial Institutions
y A Financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are highly regulated by government.

Broadly speaking, there are three major types of financial Institutions y Deposit-taking Institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies. y Insurance companies and pension funds. y Brokers, underwriters and investment funds.

Financial Market
y A Financial market is a mechanism that allows people to buy and sell

(trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficientmarket hypothesis. y Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy. In finance, financial markets facilitate: y The raising of capital (in the capital markets) y The transfer of risk (in the derivatives markets) y The transfer of liquidity (in the money markets) y International trade (in the currency markets)

FINANCIAL INSTRUMENTS
Money Market Instruments
y Call Money y Treasury Bills y Certificate of Deposits y Commercial Papers y Commercial Bills

FINANCIAL INSTRUMENTS
Capital Market Instruments y Equity Shares y Preference Shares y Debentures y Bonds y Derivative Instruments

FINANCIAL SERVICES
y Merchant Banking y Leasing y Factoring y Credit Rating y Depository y Venture Capital Financing y Hire Purchase

REGULATORY FRAMEWORK
1. 2. 3. 4. 5.

Ministry of Finance Reserve Bank of India Securities and Exchange Board of India. Insurance Regualatory Development Authority of India Pension Fund Regulatory Development Authority .

Growth and Trends in the Indian Financial System

y Emergence of a wide array of Financial Institutions to

provide a variety of services. y Significant expansion of the network of commercial banks and operations of the Financial Institutions. y Introduction of a variety of schemes and instruments for mobilising savings. y Remarkable growth in the primary as well as the secondary segments of the capital market.

y The End