The financial system connects savers and users of money, facilitating the efficient flow of funds to support economic growth. It consists of various markets, including capital and money markets, which are further divided into organized and unorganized sectors for securities and loans. The capital market specifically provides long-term finance through industrial securities, government securities, and long-term loans, crucial for business expansion and modernization.

2. Financial System refers to the financial needs of different sectors of the economy and
the ways and means to meet such needs efficiently and economically. Funds are
required for meeting various monetary needs.
The financial system acts as a connecting link between savers of money and users of
money and thereby promotes faster economic and industrial growth.
Thus financial system may be defined as “a set of markets and institutions to facilitate
the exchange of assets and risks.”
Efficient functioning of the financial system enables proper flow of funds from
investors to productive activities which in turn facilitates investment.

3. CAPITAL
MARKET
MONEY
MARKET
1) Corporate Securities Market
2) Government Securities Market
3) Long Term Loans Markets
1) Unorganized Market
2) Organized Money Market

4. 1) Corporate Securities Market 1) Unorganized Market
 Primary Market  Money Lenders
 Secondary Market  Indigenous bankers
2) Government Securities Market  Chit Funds etc.
3) Long Term Loans Markets 2) Organized Money Market
 Term Loan Markets  Treasury Bills
 Mortgages Markets  Commercial Paper (CP)
 Financial Guarantees Markets  Certificate of Deposit (CD)

5. CAPITAL MARKET
A capital market is an organized market. It provides long term finance for business.
According to Shri, K.S. “Capital Market refers to the facilities and institutional arrangements
for borrowing and lending long-term funds.”
It is divided into 3 groups:
1. Industrial / Corporate Securities Market:
It is a market for industrial securities. Corporate securities are equity and preference
shares, debentures and bonds of companies. Industrial security's market is very
Sensitive and Active Financial Market. It can be divided into 2 groups:
a) Primary Market: It is a market for new issue of securities, which are issued to
the public for first time. It is also called as New Issue Market.
b) Secondary Market: In the secondary market, there is a sale of secondary
securities. It is also called as Stock Market. It facilitates buying and selling of
securities.

6. 2. Government Securities Market:
In this market, government securities are bought and sold. It is also called as Gilt-Edged
Securities Market. The securities are issued in the form of bonds and credit notes. The buyers
of such securities are Banks, Insurance Companies, Provident funds, RBI and Individuals. These
securities may be of short-term or long term.
3. Long Term Loans Market:
Banks and Financial institutions provide long-term loans to firms, for modernization,
expansion and diversification of business. It can be divided into 3 parts:
a) Term Loans Market: Banks and Financial Institutions provide term loans to companies
for a period of one year. They also give encouragement to modernization.
b) Mortgages Market: It provides loans against securities of immovable assets like land
and buildings.
c) Financial Guarantees Market: Financial Institutions (FIS) and banks provide financial
guarantees on behalf of their clients to third parties.