FINANCIALSYSTEM BHOOMI LODAYA MBA – II [FINANCE]
Introduction An institutional framework existing in a country to enable financial transactions. Three main parts Financial assets (loans, deposits, bonds, equities, etc.) Financial institutions (banks, mutual funds, insurance companies, etc.) Financial markets (money market, capital market, forex market, etc.) Regulation is another aspect of the financial system (RBI, SEBI, IRDA, FMC)
(Contd) Enable channelizing funds from surplus units to deficit units Instruments for savers Instruments for borrowers Businesses, governments too raise funds through issuing of bonds, Treasury bills, etc.
FEATURES It provides an Ideal linkage between depositors savers and Investors Therefore it encourages savings and investment. Financial system facilitates expansion of financial markets over a period of time. Financial system should promote deficient allocation of financial resources of socially desirable and economically productive purpose. Financial system influence both quality and the pace of economic development.
Why financial system? Financial systems help the organization to make sound decisions based on cash ﬂow and available resources Monitoring funds, or comparing actual income and expenses versus budgeted amounts, helps managers ensure that the necessary funds are in place to complete an activity Transparency, clear planning and realistic projections contributes to the credibility of the organization.
(contd) Most governments require that registered, charitable organizations create accounts that track income and expenses. Establishing ﬁnancial controls and clear accounting procedures help ensure that funds are used for intended purposes. Funders require reports that demonstrate that grants were used for intended purposes.
Financial System Non- Organized Organized Money lendersRegulators Local bankersFinancial Institutions TradersFinancial Markets LandlordsFinancial services Pawn brokers Chit Funds
FUNCTIONS Payment System Pooling of Funds Transfer of Resources Risk Management Price Information for Decentralized Decision Making Price Discovery Process Liquidity Fungibility