The financial system easy explanation-atif

1. The Financial System
NEED to understand as
Management
student!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

2. What is Financial system and why it is
important????????
Financial System responsible for-
Flow of funds from the people/organization
who have surplus money(i.e. save a part of the
income)
The surplus money will go to the
people/organization who need fund for
investing in productive assets
As whole it is creates more money in the
economy

3. A natural example to understand
Financial System working
Suppose you as a individual having a monthly
income of 20000 and your monthly expense is
10000 and the surplus money left with you is
10000.
Will you keep that money in your home
idle????
If you are intelligent then suddenly you will
invest in some productive resource so that
your money grow over a period of time.

4. So naturally you can ask me what you
actually want to tell by using the
word money grow
Simple!!!!!!!!!!
I want to say that if I give somebody 10000
then after sometime I will be expecting more
than 10000 i.e. 12000,13000………..
So the important point is over a period time
there will be more money in the economy.
So more the money mobilization or
circullation more money in the economy

5. Doubt !!!!!!!!!!!!!!!!!!
There must be lot of driving forces that makes the
money grow over a period of time.
To do this I need Four weapons-------
Financial Institution
Financial Market
Financial Instruments
Financial services
Again if you are fool and treat them individually
then I am quite sure you will end with zero
knowledge in Financial system

6. Again with little effort we have to
understand that Financial System is
classified in two parts-----
• Formal Financial Sector
• Informal Financial Sector

7. Formal Attire
You have to wear formal shirt
You have to wear tie
Formal shoe
Etc.
Regulated or controlled by high level
management of SSIM. So if you want to
come in night dress certainly you will be
not allowed.

8. There is other college by name IIPM
which follows informal attire
• Wear informal shirt only
• No need to wear tie
• Chappals are allowed
etc
Overall flexibility is here but outcome maybe
very dangerous as it is not regulated

9. Formal Financial System
• Regulated
• Controlled
• Institutional
• Organized
Those very much modern and crazy about
there life they will come under this

10. Informal Financial System
• Non-Regulated
• Non-Controlled
• Non-Institutional
• Non-organized
Those who want to be simple and sweet like
normal village people they will come under
this

11. Again keep in mind both are inter-related with
each other

12. There is no free lunch in the
world!!!!!!!!
To work out financial system perfectly the
Transaction cost should be low
Sequence of process should be followed
etc

13. Formal Financial system comes under
the purview of-------
• MOF(Ministry of Finance)
• RBI(Reserve Bank of India)
• SEBI(Security Exchange Board of India)
• IRDA(Insurance Regulatory and Development
Authority)
• PFRDA(Pension Fund Regulatory and
Development Authority's)
Etc-----------------------------

14. Informal Financial system consists of--
Money lender and borrower such as neighbor
relatives traders land lords etc.
Saving club
Pawnbroker
Chit fund companies
etc

15. Component of Financial System
Financial Institution
A organization act as
intermediaries/mediator/occurring
between/medium responsible for Flow of
funds from the people/organization who have
surplus money(i.e. save a part of the income)
and responsible for putting the surplus money
to the people/organization who need fund for
investing in productive assets

16. Financial Institution can be divided
into two parts
Banking Financial Institution
Non Banking Financial Institution

17. Then what is the difference between
Banking and Non banking Financial
Institution??????
Banking Financial Institution are mainly
responsible for taking deposit from the customer
and supply the loan or credit who is in need of
fund.
Non Banking Financial institution are not eligible
to take deposit from the customer and cannot
issue cheque to the customer and overdraft
facility is also not available.

18. Banking Service
• Saving Account
• Current Account
• Fixed Deposit
• Educational Loan
• Term Loan
• Insurance
etc

19. Non Banking Financial Institution is a
company registered under the company act
1956
Mainly responsible for
Giving Loan
Acquisition of shares/bond/debenture and
other security issued by government of India
and company or corporation

20. Leasing
Hire Purchase
Insurance business
A non-banking institution which is a company and
has principal business of receiving deposits under
any scheme or arrangement in one lump sum or
in installments by way of contributions or in any
other manner, is also a non-banking financial
company (Residuary non-banking company).

21. Financial Market
Financial Market is place where borrowers and
lenders meet together and borrow and lend
money for long and short term purpose
If the borrowing and lending done for short term
purpose the it is referred as Money Market.
If the borrowing and lending done for long term
purpose the it is referred as Capital Market.

22. What happens in Money Market???
The Market participants will borrow money for
short term purpose i.e. for one year or less
than one year by selling the short term
security

23. Capital Market
If the borrowing and lending done for long
term purpose the it is referred as Capital
Market
Capital Market further classified as-
Primary Market
Secondary Market

24. Primary Market
Primary Market is a place where additional
capital will flow from normal public i.e.
investor to the company or Corporation by
issue of new securities.

25. Way’s Company can raise Fund
(Primary Market)
IPO(Initial Public Offer)
FPO(Follow on public offer)
Private Placement
Right Issue
Offer for sale

26. Secondary Market
Secondary Market is a place where only
ownership changes by buying or selling the
security of listed company in the stock
Exchange there is no additional flow of fund
from normal public to the company.