FINANCE AND SYSTEM Finance exactly is not money, it is the source ofproviding funds for a particular activity. A financial system or financial sector functions as anintermediary and facilitates the flow of funds from theareas of surplus to the areas of deficit. A Financial System is a composition of variousinstitutions, markets, regulations and laws, practices,money manager, analysts, transactions and claims andliabilities
Financial System of any country consistsof financial markets, financialintermediation and financial instrumentsor financial products Flow of funds (savings) Seekers of funds Suppliers of funds(Mainly business firms (Mainly households) and government) Flow of financial services Incomes , and financial claims
Financial SystemExistence of a well organized financial system Promotes the well being and standard of living of thepeople of a country Money and monetary assets Mobilize the saving Promotes investment
An institutional framework existing in a countryto 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 financialsystem (RBI, SEBI, IRDA, FMC)
Indian Financial System Non- Organized Organizeda. Regulators a. Local bankersb. Financial Institutions b. Tradersc. Financial Markets c. Landlordsd. Financial services d. Pawn brokers e. Chit Funds
FINANCIAL MARKETS A Financial Market can be defined as the market in whichfinancial assets are created or transferred. As against a real transaction that involves exchange of moneyfor real goods or services, a financial transaction involves creationor transfer of a financial asset. Financial Assets or Financial Instruments represents a claimto the payment of a sum of money sometime in the future and /orperiodic payment in the form of interest or dividend. Money Market- The money market is a wholesale debtmarket for low-risk, highly-liquid, short-term instrument. Funds areavailable in this market for periods ranging from a single day up to ayear. This market is dominated mostly by government, banks andfinancial institutions.
Capital Market - The capital market is designed to finance thelong-term investments. The transactions taking place in this marketwill be for periods over a year. Forex Market - The Forex market deals with the multicurrencyrequirements, which are met by the exchange ofcurrencies. Depending on the exchange rate that is applicable, thetransfer of funds takes place in this market. This is one of the mostdeveloped and integrated market across the globe. Credit Market- Credit market is a place where banks, FIs andNBFCs purvey short, medium and long-term loans to corporate andindividuals.
Purpose of the money market Banks borrow in the money market to: Fill the gaps or temporary mismatch of funds To meet the CRR and SLR mandatory requirements as stipulated by the central bank To meet sudden demand for funds arising out of large outflows (like advance tax payments) Call money market serves the role of equilibrating theshort-term liquidity position of the banks