Financial Institution &

Markets
Chapter 1 Overview
The financial system of the country is also its backbone and
needs to be carefully nurtured to ensure the financial stability of
the nation. The financial system in India includes the financial
institutions of the country and the financial markets. These
components are integrated into the fabric of the nation and the
government has been making many efforts to strengthen the
financial system and ensure its maximum reach to every person
in the country. Discussed hereunder are the meaning and related
details of the financial markets and the financial institutions of
the country.
What are financial markets and financial institutions?
Financial markets refer to organized platforms for buying and selling
securities such as stocks, bonds, derivatives, currencies, and
commodities. It is the platform for businesses to raise capital and
mobilize funds that results in the ultimate progress of the nation. Some
of the major financial markets in Pakistan are PSX, CDC PMEX
Financial institutions are multiple entities that provide financial services
such as banking, insurance, and investment. These institutions are
charged with providing timely and sufficient credit to participants like
small businesses or individuals even in the remotest parts of the country
to large corporations for building the assets of the nation. Some of the
major financial institutions are SBP commercial public sector and
private sector banks, co-operative banks, insurance companies, and asset
management companies.
The financial markets and financial institutions are heavily regulated by
competent authorities like SBP and SECP. These regulations ensure the
safeguarding of the interest of the common man at the same time
regulated the movement of funds for the optimum progress of the
nation.
Types of Financial Markets in India
The different types of financial markets in India and their meaning are mentioned
below.

•Equity Markets
The equity markets comprise various securities that are traded on the stock
exchanges like PSX in Pakistan; NYSE TSE and the Bombay Stock Exchange
(BSE). These platforms provide the companies an opportunity to raise capital
through public subscription and investors get the opportunity for wealth creation
by investing in such companies.

•Debt Markets
The government and corporate issuers can also raise capital through the sale of
bonds. The debt market in Pakistan is regulated by SECP and is relatively less
volatile as compared to the equity markets. This makes it an optimum investment
option for risk-averse investors or investors looking for a stable source of income.
•Derivatives Markets
The secondary market or the derivative market is where
securities are traded through forward contracts, futures and
options contracts, and currency markets where the value of the
derivative is derived from the value of an underlying asset, such
as a stock, commodity, or currency. These derivatives are traded
on stock exchanges such as NSE and BSE. Derivatives trading
can be used as a tool for hedging, speculation, or arbitrage.
Commodity Markets

The Commodity Market in India refers to the platform where

physical commodities, such as agricultural products, metals, and
energy, are bought and sold. The PMEX in Pakistan

•Foreign Exchange Market

The foreign exchange market is regulated by SBP. It refers to
the platform where currencies of different countries are traded
and the foreign exchange market in India operates 24 hours a
day, five days a week. It is considered the largest financial
market in the world.
Types of Financial Institutions

•Central Bank
The SBP is the central bank and was established in 1948. It is
the central agency that is responsible for formulating and
implementing monetary policy in the country, regulating and
supervising the banking system, and maintaining stability in the
financial system. SBP also acts as a regulator for the financial
sector, including commercial banks, and non-banking financial
companies (NBFCs).

•Banks
Banks iare financial institutions that have the function of
accepting deposits and providing credit facilities and other
financial services to individuals, businesses, and governments.
Banks can be broadly categorized into two types: public sector
banks and private sector banks. All banks have to function as
per the regulations laid by the SBP and are required to comply
with all the formulated standards to ensure the stability and
soundness of the banking system.
•Insurance Companies
Insurance Companies are financial institutions that provide insurance products and
services to individuals and businesses. The insurance sector is regulated by the SECP.
Insurance companies can be broadly categorized into two types, namely, life insurance
companies and non-life insurance companies.

•Investment Companies
Investment companies iare financial institutions that are in charge of managing
investments and providing investment products and services to individuals and
institutions. Mutual funds, pension funds, and alternative investment funds are some of
the major investment companies. Investment companies are regulated by the SECP
and the sector has seen rapid growth in recent years.

•Non-Banking Financial Companies (NBFCs)

NBFCs are regulated by SBP and are required to comply with a range of regulations
and standards to ensure the stability and soundness of the financial system. These
institutions provide a range of financial services, including loans, investment products,
and insurance, but do not have a banking license. SBP has taken a number of measures
to address challenges like liquidity and security issues, including increasing regulatory
oversight. SBP has been striving to implement new regulations to improve the
governance and risk management practices of NBFCs Their products regulated by
SECP
FAQs
What are the advantages of financial institutions?The
various advantages of financial institutions are providing credit
access, banking services, savings, and investment options,
professional financial services, increasing financial literacy, etc
What are the disadvantages of financial institutions?Some of
the disadvantages of financial institutions are the lack of
accessibility in rural and remote areas of the country, security
challenges, higher fees/charges, technical issues, the complexity
of processes, etc
What are the types of financial markets in terms of
delivery?In terms of delivery structure, financial markets can
be classified into cash markets or futures markets.
What are the key roles of the financial market?The key role
of the financial market includes allocating capital, risk
management, price discovery, facilitating investments,
improving liquidity, and promoting economic growth
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