Financial System, Components and Features

2. INTRODUCTION:
? The word ‘system’ stands for a scheme of classification
and a method of organisation.
? Finance is the study of money, its nature, creation,
behaviour, regulation and administration.
? All these activities dealing in finance are organised in
a system known as the financial system of financial
sector.
? A financial system means the structure that is
available in an economy to mobilise the capital from
various surplus sectors of the economy and allocate
and distribute the same to the various needy sectors.
? The transformation of ‘savings’ into ‘investments and
consumptions’ are facilitated by the active role played
by the financial system.

3. STRUCTURE OF FINANCIAL SYSTEM:

4. 1) FINANCIAL INSTITUTIONS:
? Financial institutions are business organisations
that act as mobilisers and depositories of savings.
? They also provide various financial to the society.
? Financial institutions are divided into:
⚫ Banking Institutions
⚫ Non Banking Institutions

5. 2) FINANCIAL MARKETS:
? The arrangements that provide facilities for
buying and selling of financial claims and
services are known as financial markets.
? The participants in these markets are financial
institutions.
? Financial markets can be classified as,
⚫ Primary Market
⚫ Secondary Market
? Financial market can also be classified as,
⚫ Money Market
⚫ Capital Market

6. 3) FINANCIAL INSTRUMENTS:
? The Financial System deals in financial services
and claims which are known as financial
instruments, or financial assets or securities.
? Financial instruments can be classified as,
⚫ Primary Instruments
⚫ Secondary Instruments

7. 4) FINANCIAL SERVICES:
? Indian financial system has a strong group of
financial institutions, which are different in
nature.
? They are financial intermediaries who provide
variety of financial services to the business and
community.

8. FUNCTIONS OF FINANCIAL SYSTEM:
? Pooling of Funds
? Capital Formation
? Facilitates Payment
? Provides Liquidity
? Short and Long Term Needs
? Risk Function
? Better Decisions
? Finances Government Needs
? Economic Development