Indian financial system consists of financial institutions and financial markets. Financial institutions are intermediaries that collect money from individuals and invest it in financial assets. There are two types of financial institutions: banking institutions like banks that collect deposits and make loans, and non-banking institutions like brokerages that sell financial products but do not take deposits. Financial markets are where buyers and sellers trade financial assets. The capital market deals in long-term securities and the money market deals in short-term debt instruments. Financial assets include cash, loans, and other instruments that provide a claim to receive payment. Financial services involve providing financial products and advisory services to individuals and businesses in areas like banking, investments, and insurance.

2. indian financial system

3. (1) Financial Institutions
 Financial institutions are intermediaries of financial markets which facilitate financial
transactions between individuals and financial customers.
 It simply refers to an organization (set-up for profit or not for profit) that collects
money from individuals and invests that money in financial assets such as stocks,
bonds, bank deposits, loans etc.
 There can be two types of financial institutions:
 Banking Institutions or Depository institutions – These are banks and credit unions
that collect money from the public in return for interest on money deposits and use
that money to advance loans to financial customers.
 Non- Banking Institutions or Non-Depository institutions – These are brokerage firms,
insurance and mutual funds companies that cannot collect money deposits but can
sell financial products to financial customers.

4. (2) Financial Markets
 It refers to any marketplace where buyers and sellers participate in trading of
assets such as shares, bonds, currencies and other financial instruments. A
financial market may be further divided into capital market and money market.
While the capital market deals in long term securities having maturity period of
more than one year, the money market deals with short-term debt instruments
having maturity period of less than one year.

5. capital market
 The capital market aids raising of capital on a long-term basis, generally over 1
year. It consists of a primary and a secondary market and can be divided into two
main subgroups – Bond market and Stock market.

6. primary market
 A primary market, or the so-called “new issue market”, is where securities such as
shares and bonds are being created and traded for the first time without using
any intermediary such as an exchange in the process. When a private company
decides to become a publicly-traded entity, it issues and sells its stocks at a so-
called Initial Public Offering. IPOs are a strictly regulated process which is
facilitated by investment banks or finance syndicates of securities dealers that set
a starting price range and then oversee its sale directly to the investors.

7. secondary market
 A secondary market, or the so-called “aftermarket” is the place where investors
purchase previously issued securities such as stocks, bonds, futures and options
from other investors, rather from issuing companies themselves. The secondary
market is where the bulk of exchange trading occurs and it is what people are
talking about when they refer to the “stock market”. It includes the NYSE, Nasdaq
and all other major exchanges.

8. money market
 The money market has traditionally been defined as the market for short-term
marketable debt instruments, such as commercial paper (CP) and treasury bills
(TBs). ... Thus, monetary policy is aimed at influencing the demand for credit and
its outcome, money creation.

9. (3) Financial Assets/Instruments
 Financial assets include cash deposits, checks, loans, accounts receivable, letter of
credit, bank notes and all other financial instruments that provide a claim against
a person/financial institution to pay either a specific amount on a certain future
date or to pay the principal amount along with interest.

10. (4) Financial Services
 Financial Services are concerned with the design and delivery of financial
instruments and advisory services to individuals and businesses within the area of
banking and related institutions, personal financial planning, leasing, investment,
assets, insurance etc.
 It involves provision of a wide variety of fund/asset based and non-fund
based/advisory services and includes all kinds of institutions which provide
intermediate financial assistance and facilitate financial transactions between
individuals and corporate customers.

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