SlideShare a Scribd company logo
1 of 19
Download to read offline
The Indian Financial




                                                              Copyright© 2008 Dorling Kindersley India Pvt. Ltd
      System
  Markets, Institutions and
         Services




                  The Indian Financial System, 2e -- Pathak
Copyright© 2008 Dorling Kindersley India Pvt. Ltd
  1
Financial System: An
  Introduction




                The Indian Financial System, 2e -- Pathak
The Indian Financial System




                                                             Copyright© 2008 Dorling Kindersley India Pvt. Ltd
                 The Indian Financial System, 2e -- Pathak
Chapter Objectives




                                                                            Copyright© 2008 Dorling Kindersley India Pvt. Ltd
To understand the

   meaning of financial system
   components of the financial system
   functions of the financial system
   key elements of the financial system
   key elements of a well functioning financial
    system
   bank-based and market-based financial
    systems
   nature and role of financial institutions and
    markets
   link between money market and capital
    market
   link between primary market and secondary
                                The Indian Financial System, 2e -- Pathak
    market
Meaning of the Financial
          System




                                                                         Copyright© 2008 Dorling Kindersley India Pvt. Ltd
 A set of sub systems of financial
institutions, markets, instruments and
services
 Intermediates with the flow of funds
between savers and borrowers.
 Facilitates transfer and allocation of scarce
   resources efficiently and effectively




                             The Indian Financial System, 2e -- Pathak
Types of Financial
     System




                                                                        Copyright© 2008 Dorling Kindersley India Pvt. Ltd
 Formal financial system – organized,
institutional and regulated

 Informal financial system
   Advantages
        Low transaction costs
        Minimum default risk
        Transparency of procedures
   Disadvantages
        Wide range of interest rates
        Higher rates of interest
        Unregulated


                            The Indian Financial System, 2e -- Pathak
Components of the Financial
System




                                                                       Copyright© 2008 Dorling Kindersley India Pvt. Ltd
 Financial Institutions

 Financial Markets

 Financial Instruments

 Financial Services




                           The Indian Financial System, 2e -- Pathak
Types of Financial
         Institutions




                                                                      Copyright© 2008 Dorling Kindersley India Pvt. Ltd
 Banking: creators and purveyors of credit.
      Types
           Commercial Banks
             Cooperative Banks
 Non-banking: purveyors of credit
      Types
           Developmental financial
institutions
             Mutual funds
             Insurance companies
             NBFCs



                          The Indian Financial System, 2e -- Pathak
Functions of Financial
Institutions




                                                                        Copyright© 2008 Dorling Kindersley India Pvt. Ltd
Provide three transformation services

 Liability, asset and size transformation

 Maturity transformation

 Risk transformation




                            The Indian Financial System, 2e -- Pathak
Financial Markets




                                                                        Copyright© 2008 Dorling Kindersley India Pvt. Ltd
Types
 Money Market – A market for short-term debt
  instruments
 Capital Market – A market for long-term equity
and debt instruments

Segments
 Primary Market – A market for new issues
 Secondary Market – A market for trading
outstanding issues

                            The Indian Financial System, 2e -- Pathak
Link Between Primary and
   Secondary Capital Market




                                                                        Copyright© 2008 Dorling Kindersley India Pvt. Ltd
 A buoyant secondary market is
indispensable for   the presence of a
vibrant primary market.

 The secondary market provides a basis for
the determination of prices of new issues.

 Depth of the secondary market depends on
the primary market.

 Bunching of new issues affects prices in the
     secondary market.

                            The Indian Financial System, 2e -- Pathak
Financial Instruments




                                                                 Copyright© 2008 Dorling Kindersley India Pvt. Ltd
Types

  Primary

  Secondary

Distinct Features

  Marketable

  Tradable

  Tailor-made

                     The Indian Financial System, 2e -- Pathak
Financial Services




                                                                      Copyright© 2008 Dorling Kindersley India Pvt. Ltd
Major Categories
Funds intermediation

Payments mechanism

Provision of liquidity

Risk management

Financial engineering



                          The Indian Financial System, 2e -- Pathak
Functions of Financial
            System




                                                                       Copyright© 2008 Dorling Kindersley India Pvt. Ltd
Mobilise and allocate savings
Monitor corporate performance
Provide payment and settlement systems
Optimum allocation of risk bearing and
reduction
Disseminate prize related information
Offer portfolio adjustment facility
Lower the cost of transactions
Promote the process of financial deepening
and broadening




                           The Indian Financial System, 2e -- Pathak
Key Elements of a Well-
 functioning Financial System




                                                                       Copyright© 2008 Dorling Kindersley India Pvt. Ltd
A strong legal and regulatory
environment
Stable money
Sound public finances and public debt
management
A central bank
Sound banking system
Information system
Well-functioning securities market




                           The Indian Financial System, 2e -- Pathak
Financial System Designs




                                                             Copyright© 2008 Dorling Kindersley India Pvt. Ltd
Types
Bank-based

Market-based




                 The Indian Financial System, 2e -- Pathak
Market-based Financial
 System
Advantages




                                                                        Copyright© 2008 Dorling Kindersley India Pvt. Ltd
Provide attractive terms to both investors
and borrowers
Facilitate diversification
Allow risk sharing
Allow financing of new technologies

Drawbacks
Prone to instability
Exposure to market risk
Free-rider problem


                            The Indian Financial System, 2e -- Pathak
Bank-based Financial
    System




                                                                          Copyright© 2008 Dorling Kindersley India Pvt. Ltd
Advantages
Close relationships with parties
Provide tailor-made contracts
Efficient inter-temporal risk sharing
No free-rider problem

Drawbacks
Retards innovation and growth
Impedes competition




                              The Indian Financial System, 2e -- Pathak
Functions of Financial
            Markets




                                                                         Copyright© 2008 Dorling Kindersley India Pvt. Ltd
Enabling economic units to exercise their
time preference
Separation, distribution, diversification and
reduction of risk
Efficient payment mechanism
Providing information
Enhancing liquidity
Providing portfolio management services




                             The Indian Financial System, 2e -- Pathak

More Related Content

What's hot

Investment Analysis and Portfolio Management
Investment Analysis and Portfolio ManagementInvestment Analysis and Portfolio Management
Investment Analysis and Portfolio ManagementBabasab Patil
 
Mutual funds
Mutual fundsMutual funds
Mutual fundsSweetp999
 
financial intermediares
financial intermediaresfinancial intermediares
financial intermediaresSpoorthi As
 
The investment environment ppt @ bec doms
The investment environment ppt @ bec domsThe investment environment ppt @ bec doms
The investment environment ppt @ bec domsBabasab Patil
 
Financial markets
Financial marketsFinancial markets
Financial marketsPARUL GUPTA
 
Financial Market Intermediaries
Financial Market IntermediariesFinancial Market Intermediaries
Financial Market Intermediariesrony_jacob13
 
Alternative Investment
Alternative Investment Alternative Investment
Alternative Investment Parul Singh
 
Security Analysis and Portfolio Management - Investment-and_Risk
Security Analysis and Portfolio Management -  Investment-and_RiskSecurity Analysis and Portfolio Management -  Investment-and_Risk
Security Analysis and Portfolio Management - Investment-and_Riskumaganesh
 
Security market operations 260214
Security market operations 260214Security market operations 260214
Security market operations 260214Jakir Hossain
 
Capital Asset Pricing Model (CAPM)
Capital Asset Pricing Model (CAPM)Capital Asset Pricing Model (CAPM)
Capital Asset Pricing Model (CAPM)VadivelM9
 
CURRENCY DERIVATIVES
CURRENCY DERIVATIVES CURRENCY DERIVATIVES
CURRENCY DERIVATIVES Rajin Rajan
 

What's hot (20)

Investment Analysis and Portfolio Management
Investment Analysis and Portfolio ManagementInvestment Analysis and Portfolio Management
Investment Analysis and Portfolio Management
 
indian financial markets
indian financial markets indian financial markets
indian financial markets
 
Mutual funds
Mutual fundsMutual funds
Mutual funds
 
financial intermediares
financial intermediaresfinancial intermediares
financial intermediares
 
Indian Capital market
Indian Capital marketIndian Capital market
Indian Capital market
 
Debt market
Debt marketDebt market
Debt market
 
The investment environment ppt @ bec doms
The investment environment ppt @ bec domsThe investment environment ppt @ bec doms
The investment environment ppt @ bec doms
 
Financial markets
Financial marketsFinancial markets
Financial markets
 
What is Capital Market?
What is Capital Market?What is Capital Market?
What is Capital Market?
 
Financial Market Intermediaries
Financial Market IntermediariesFinancial Market Intermediaries
Financial Market Intermediaries
 
Alternative Investment
Alternative Investment Alternative Investment
Alternative Investment
 
Financial services
Financial services Financial services
Financial services
 
Capital market ppt
Capital market pptCapital market ppt
Capital market ppt
 
Mutual fund ppt
Mutual fund pptMutual fund ppt
Mutual fund ppt
 
International banking MFI
International banking MFIInternational banking MFI
International banking MFI
 
Capital Market
Capital MarketCapital Market
Capital Market
 
Security Analysis and Portfolio Management - Investment-and_Risk
Security Analysis and Portfolio Management -  Investment-and_RiskSecurity Analysis and Portfolio Management -  Investment-and_Risk
Security Analysis and Portfolio Management - Investment-and_Risk
 
Security market operations 260214
Security market operations 260214Security market operations 260214
Security market operations 260214
 
Capital Asset Pricing Model (CAPM)
Capital Asset Pricing Model (CAPM)Capital Asset Pricing Model (CAPM)
Capital Asset Pricing Model (CAPM)
 
CURRENCY DERIVATIVES
CURRENCY DERIVATIVES CURRENCY DERIVATIVES
CURRENCY DERIVATIVES
 

Viewers also liked

Indian financial system
Indian financial systemIndian financial system
Indian financial systemJayat Rathore
 
Indian financial system ppt
Indian financial system pptIndian financial system ppt
Indian financial system pptdivyaactive
 
STRUCTURE AND FUNCTIONS OF INDIAN FINANCIAL SYSTEM
STRUCTURE AND FUNCTIONS OF INDIAN FINANCIAL SYSTEMSTRUCTURE AND FUNCTIONS OF INDIAN FINANCIAL SYSTEM
STRUCTURE AND FUNCTIONS OF INDIAN FINANCIAL SYSTEMBipin Yadav
 
Chapter 02_Overview of the Financial System
Chapter 02_Overview of the Financial SystemChapter 02_Overview of the Financial System
Chapter 02_Overview of the Financial SystemRusman Mukhlis
 
Components of indian financial system
Components of indian financial systemComponents of indian financial system
Components of indian financial systemavjt
 
Role of financial system
Role of financial systemRole of financial system
Role of financial systemBikramjit Singh
 
Role of financial markets and institutions ch.1 (uts)
Role of financial markets and institutions   ch.1 (uts)Role of financial markets and institutions   ch.1 (uts)
Role of financial markets and institutions ch.1 (uts)Rika Hernawati
 
Financial system ppt
Financial system pptFinancial system ppt
Financial system pptsonu689
 

Viewers also liked (10)

Indian financial system
Indian financial systemIndian financial system
Indian financial system
 
Indian financial system ppt
Indian financial system pptIndian financial system ppt
Indian financial system ppt
 
Indian Financial System
Indian Financial SystemIndian Financial System
Indian Financial System
 
STRUCTURE AND FUNCTIONS OF INDIAN FINANCIAL SYSTEM
STRUCTURE AND FUNCTIONS OF INDIAN FINANCIAL SYSTEMSTRUCTURE AND FUNCTIONS OF INDIAN FINANCIAL SYSTEM
STRUCTURE AND FUNCTIONS OF INDIAN FINANCIAL SYSTEM
 
Chapter 02_Overview of the Financial System
Chapter 02_Overview of the Financial SystemChapter 02_Overview of the Financial System
Chapter 02_Overview of the Financial System
 
Components of indian financial system
Components of indian financial systemComponents of indian financial system
Components of indian financial system
 
Investment Avenues
Investment AvenuesInvestment Avenues
Investment Avenues
 
Role of financial system
Role of financial systemRole of financial system
Role of financial system
 
Role of financial markets and institutions ch.1 (uts)
Role of financial markets and institutions   ch.1 (uts)Role of financial markets and institutions   ch.1 (uts)
Role of financial markets and institutions ch.1 (uts)
 
Financial system ppt
Financial system pptFinancial system ppt
Financial system ppt
 

Similar to Indian financial system

Indian Financial System
Indian Financial SystemIndian Financial System
Indian Financial SystemDaniyal Ali
 
Financial services
Financial servicesFinancial services
Financial servicesIrr India
 
Financial services
Financial servicesFinancial services
Financial servicesIrr India
 
Disadvantages Of Derivative Contracts
Disadvantages Of Derivative ContractsDisadvantages Of Derivative Contracts
Disadvantages Of Derivative ContractsRebecca Bordes
 
India - are we ready for reit in commercial real estate, game changes, taxati...
India - are we ready for reit in commercial real estate, game changes, taxati...India - are we ready for reit in commercial real estate, game changes, taxati...
India - are we ready for reit in commercial real estate, game changes, taxati...Anil GROVER
 
Chapter 1 introduction to Indian financial system
Chapter 1 introduction to Indian financial systemChapter 1 introduction to Indian financial system
Chapter 1 introduction to Indian financial systemShivam Singhal
 
Share Market
Share MarketShare Market
Share Marketashtle
 
Project Report On Reliance Money
Project Report On Reliance MoneyProject Report On Reliance Money
Project Report On Reliance MoneyAmit Karnani
 
Any good business require corporate governance ppt
Any good business require corporate governance pptAny good business require corporate governance ppt
Any good business require corporate governance pptShailesh Sharma
 
$$ Final indian finanacial system 2$
$$  Final indian finanacial system 2$$$  Final indian finanacial system 2$
$$ Final indian finanacial system 2$Kumaran Vel
 
The aimin v13 clean
The aimin   v13 cleanThe aimin   v13 clean
The aimin v13 cleanshang7
 
Venture capital in karnataka
Venture capital in karnatakaVenture capital in karnataka
Venture capital in karnatakaIAEME Publication
 
A project report on comparative analysis of demat account and online trading
A project report on comparative analysis of demat account and online tradingA project report on comparative analysis of demat account and online trading
A project report on comparative analysis of demat account and online tradingProjects Kart
 
Financial Markets and Institutions ppt
Financial Markets and Institutions pptFinancial Markets and Institutions ppt
Financial Markets and Institutions pptChella Pandian
 
Project report on depository participant
Project report on depository participantProject report on depository participant
Project report on depository participantTarun Sharma
 
Case Study On Indian Finance
Case Study On Indian FinanceCase Study On Indian Finance
Case Study On Indian FinanceRobyn Nelson
 

Similar to Indian financial system (20)

Indian Financial System
Indian Financial SystemIndian Financial System
Indian Financial System
 
Chap1.ppt
Chap1.pptChap1.ppt
Chap1.ppt
 
Indian Financial System (IFS)
Indian Financial System (IFS)Indian Financial System (IFS)
Indian Financial System (IFS)
 
Financial services
Financial servicesFinancial services
Financial services
 
Financial services
Financial servicesFinancial services
Financial services
 
Disadvantages Of Derivative Contracts
Disadvantages Of Derivative ContractsDisadvantages Of Derivative Contracts
Disadvantages Of Derivative Contracts
 
India - are we ready for reit in commercial real estate, game changes, taxati...
India - are we ready for reit in commercial real estate, game changes, taxati...India - are we ready for reit in commercial real estate, game changes, taxati...
India - are we ready for reit in commercial real estate, game changes, taxati...
 
Research Paper
Research PaperResearch Paper
Research Paper
 
Chapter 1 introduction to Indian financial system
Chapter 1 introduction to Indian financial systemChapter 1 introduction to Indian financial system
Chapter 1 introduction to Indian financial system
 
Indian finsncial system
Indian finsncial systemIndian finsncial system
Indian finsncial system
 
Share Market
Share MarketShare Market
Share Market
 
Project Report On Reliance Money
Project Report On Reliance MoneyProject Report On Reliance Money
Project Report On Reliance Money
 
Any good business require corporate governance ppt
Any good business require corporate governance pptAny good business require corporate governance ppt
Any good business require corporate governance ppt
 
$$ Final indian finanacial system 2$
$$  Final indian finanacial system 2$$$  Final indian finanacial system 2$
$$ Final indian finanacial system 2$
 
The aimin v13 clean
The aimin   v13 cleanThe aimin   v13 clean
The aimin v13 clean
 
Venture capital in karnataka
Venture capital in karnatakaVenture capital in karnataka
Venture capital in karnataka
 
A project report on comparative analysis of demat account and online trading
A project report on comparative analysis of demat account and online tradingA project report on comparative analysis of demat account and online trading
A project report on comparative analysis of demat account and online trading
 
Financial Markets and Institutions ppt
Financial Markets and Institutions pptFinancial Markets and Institutions ppt
Financial Markets and Institutions ppt
 
Project report on depository participant
Project report on depository participantProject report on depository participant
Project report on depository participant
 
Case Study On Indian Finance
Case Study On Indian FinanceCase Study On Indian Finance
Case Study On Indian Finance
 

Indian financial system

  • 1. The Indian Financial Copyright© 2008 Dorling Kindersley India Pvt. Ltd System Markets, Institutions and Services The Indian Financial System, 2e -- Pathak
  • 2. Copyright© 2008 Dorling Kindersley India Pvt. Ltd 1 Financial System: An Introduction The Indian Financial System, 2e -- Pathak
  • 3. The Indian Financial System Copyright© 2008 Dorling Kindersley India Pvt. Ltd The Indian Financial System, 2e -- Pathak
  • 4. Chapter Objectives Copyright© 2008 Dorling Kindersley India Pvt. Ltd To understand the  meaning of financial system  components of the financial system  functions of the financial system  key elements of the financial system  key elements of a well functioning financial system  bank-based and market-based financial systems  nature and role of financial institutions and markets  link between money market and capital market  link between primary market and secondary The Indian Financial System, 2e -- Pathak market
  • 5. Meaning of the Financial System Copyright© 2008 Dorling Kindersley India Pvt. Ltd  A set of sub systems of financial institutions, markets, instruments and services  Intermediates with the flow of funds between savers and borrowers.  Facilitates transfer and allocation of scarce resources efficiently and effectively The Indian Financial System, 2e -- Pathak
  • 6. Types of Financial System Copyright© 2008 Dorling Kindersley India Pvt. Ltd  Formal financial system – organized, institutional and regulated  Informal financial system Advantages Low transaction costs Minimum default risk Transparency of procedures Disadvantages Wide range of interest rates Higher rates of interest Unregulated The Indian Financial System, 2e -- Pathak
  • 7. Components of the Financial System Copyright© 2008 Dorling Kindersley India Pvt. Ltd  Financial Institutions  Financial Markets  Financial Instruments  Financial Services The Indian Financial System, 2e -- Pathak
  • 8. Types of Financial Institutions Copyright© 2008 Dorling Kindersley India Pvt. Ltd  Banking: creators and purveyors of credit. Types Commercial Banks Cooperative Banks  Non-banking: purveyors of credit Types Developmental financial institutions Mutual funds Insurance companies NBFCs The Indian Financial System, 2e -- Pathak
  • 9. Functions of Financial Institutions Copyright© 2008 Dorling Kindersley India Pvt. Ltd Provide three transformation services  Liability, asset and size transformation  Maturity transformation  Risk transformation The Indian Financial System, 2e -- Pathak
  • 10. Financial Markets Copyright© 2008 Dorling Kindersley India Pvt. Ltd Types  Money Market – A market for short-term debt instruments  Capital Market – A market for long-term equity and debt instruments Segments  Primary Market – A market for new issues  Secondary Market – A market for trading outstanding issues The Indian Financial System, 2e -- Pathak
  • 11. Link Between Primary and Secondary Capital Market Copyright© 2008 Dorling Kindersley India Pvt. Ltd  A buoyant secondary market is indispensable for the presence of a vibrant primary market.  The secondary market provides a basis for the determination of prices of new issues.  Depth of the secondary market depends on the primary market.  Bunching of new issues affects prices in the secondary market. The Indian Financial System, 2e -- Pathak
  • 12. Financial Instruments Copyright© 2008 Dorling Kindersley India Pvt. Ltd Types Primary Secondary Distinct Features Marketable Tradable Tailor-made The Indian Financial System, 2e -- Pathak
  • 13. Financial Services Copyright© 2008 Dorling Kindersley India Pvt. Ltd Major Categories Funds intermediation Payments mechanism Provision of liquidity Risk management Financial engineering The Indian Financial System, 2e -- Pathak
  • 14. Functions of Financial System Copyright© 2008 Dorling Kindersley India Pvt. Ltd Mobilise and allocate savings Monitor corporate performance Provide payment and settlement systems Optimum allocation of risk bearing and reduction Disseminate prize related information Offer portfolio adjustment facility Lower the cost of transactions Promote the process of financial deepening and broadening The Indian Financial System, 2e -- Pathak
  • 15. Key Elements of a Well- functioning Financial System Copyright© 2008 Dorling Kindersley India Pvt. Ltd A strong legal and regulatory environment Stable money Sound public finances and public debt management A central bank Sound banking system Information system Well-functioning securities market The Indian Financial System, 2e -- Pathak
  • 16. Financial System Designs Copyright© 2008 Dorling Kindersley India Pvt. Ltd Types Bank-based Market-based The Indian Financial System, 2e -- Pathak
  • 17. Market-based Financial System Advantages Copyright© 2008 Dorling Kindersley India Pvt. Ltd Provide attractive terms to both investors and borrowers Facilitate diversification Allow risk sharing Allow financing of new technologies Drawbacks Prone to instability Exposure to market risk Free-rider problem The Indian Financial System, 2e -- Pathak
  • 18. Bank-based Financial System Copyright© 2008 Dorling Kindersley India Pvt. Ltd Advantages Close relationships with parties Provide tailor-made contracts Efficient inter-temporal risk sharing No free-rider problem Drawbacks Retards innovation and growth Impedes competition The Indian Financial System, 2e -- Pathak
  • 19. Functions of Financial Markets Copyright© 2008 Dorling Kindersley India Pvt. Ltd Enabling economic units to exercise their time preference Separation, distribution, diversification and reduction of risk Efficient payment mechanism Providing information Enhancing liquidity Providing portfolio management services The Indian Financial System, 2e -- Pathak