2. Objective of this PPT
To understand the working and organisation of
Indian financial system
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3. Introduction to Financial System
Financial system is a mechanism that works for
investors and people who want finance.
It is an interaction of various intermediaries, market
instruments, policy makers and various regulations to
aid the flow of saving from savers to investors and
checking various abuses faced in the proper
functioning of the system.
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5. Indian Financial System
Pre- planned period
Close character of entrepreneurship
Absence of financial Intermediaries
Low industrial growth rate
Mixed economy based planned period
Public/ Govt. ownership of financial institutions
RBI, Nationalised banks, Special purpose financial
institutions
Investors’ protection
Companies act, Securities contract act
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6. Money Market Meaning
Prof Sayers- money market is that area of market that
deals in short term capital.
Market for funds and assets that are close substitutes
for money
Focuses on providing means by which government
and institutions are able to rapidly adjust their actual
liquidity position.
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7. Instruments of Money Market
Call money instruments- one day loan
Treasury bills- meeting short term deficits of govt
Commercial papers- short term instruments
issued by corporate- introduced in Jan 1990
Certificate of deposits- issues by banks to the
depositor, introduced in June 989- lowest period
15 days for 5 lakhs
Repo transactions- maturity of 1 day to six
months
Money market mutual funds-introduced by RBI
in April 1992 and regulated by SEBI
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8. Capital Market Meaning
Market where long term and medium term financial
instruments are traded.
This market consists of two parts:
Primary market
By prospectus
Offer for sale
Private placement
Right issue
Right issue
Employees stock option
Sweat equity
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9. Secondary Market
Located at a fixed place
Securities of listed companies are traded
Purpose is to transfer ownership
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10. Instruments of Capital Market
Equity shares
Preference shares
Debentures/ bonds
Innovative debt instruments
Convertible debentures/bonds
Warrants
Zero interest bond
Secured premium notes
Floating rate bond
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11. Instruments of Capital Market
cont..
Forward contract
Not standardized, regulated through trading, margin is
required
Futures
Standardized , traded at over the counter market,
involves counter party risk
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13. Equilibrium in Financial Markets
Interest rate
Lending
Price
Supply
Borrowings
Amount of loan funds
If the interest rate rises lenders
are ready to provide more funds
Borrowers are ready to borrow
when interest rate falls.
Demand
Amount of securities
Investors are willing to buy more
securities as price falls, and sell
more when price rises.
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