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Indian Financial System
Prasad S
Assistant Professor
Sree Sankara College Kalady
Ernakulam – 683 574
Kerala
The Financial System
An institutional framework existing in a country to
enable financial transactions
A system that establishes efficient and smooth
linkage between depositors and investors
The Financial System
The Financial System composed of
1. Financial Markets
◦ Money Market, Capital Market, Forex Markets etc.
2. Financial Institutions
◦ Banking and non banking financial institutions.
3. Financial Securities
◦ Loans, deposits, equity shares, bonds, debentures etc.
4. Regulatory agencies
◦ RBI, SEBI, IRDA etc.
Financial Markets
Financial markets facilitate the trade in financial products
The primary role of financial markets is to intermediate resources
from savers to investors.
Allocates the resources in an efficient manner among competing
uses in the economy
….contributing to growth both through increased investment and
through enhanced efficiency in resource use.
Financial Markets
Money markets, which provide short term debt financing and investment.
Capital markets deals with long term funds.
Foreign exchange markets, which facilitate the trading of foreign exchange.
There will be various submarkets in each of these components
Commodity markets, which facilitate the trading of commodities.
Derivatives markets, which provide instruments for the management of financial risk.
Insurance markets, which facilitate the redistribution of various risks.
Money Market
Money market is market for short term funds
Money Market
Organised Unorganised
Call Money Market Bill Market Bank loans
Treasury Bills
Commercial
Bills
Hunidies
Loans from
IBs etc.
Organised
Call Money
Market
Bank loans
CPs CDs
RBI
Capital Market
Market for long term funds
Capital Market
Institutions
• IFCI
• SFCs
• IDFCs
• Investment Banks
• Mutual Funds
• Marchant banks
• Stock Exchanges
• Underwriters
Market
Primary • Equity Share
• Preference Shares
• Bonds
• Debentures
• Mutual Funds
• Depository Receipts
Secondary
Instruments SEBI
Foreign Exchange Market
Market for currencies of different countries
The organisational set up within which individuals, financial institutions, firms,
orgnaisations, governments buy and sell foreign currencies.
▪It is the largest market in the world
▪No specific meeting places
▪Twenty four hour market
▪Cash and other short term credit instruments used as instruments of forex
transitions.
Financial Institutions
Banking and Non-banking financial institutions
Banking institutions such as commercial banks collect money from
depositors directly and lend to investors or borrowers.
Non-banking institutions such as LIC, UTI are engaged in obtaining funds
from depositors indirectly.
There are special purpose institutions like NABARD, EXIM Bank which
are engaged in providing financial assistance for specific purposes and
sectors to bring about a desired pattern of development
Financial Institutions
Banking Institutions
◦ Commercial banks
◦ Cooperative banks
◦ Regional Rural banks
Non-banking Institutions
◦ Asset finance companies
◦ Housing finance companies
◦ Venture capital funds
◦ Merchant banking organisations
◦ Credit rating agencies
◦ Factoring and forfeiting organisations
◦ Stock broking firms
◦ Depositories
Financial Assets/securities/instruments
Primary Securities, Secondary Securities, Derivative Instruments
Primary/Direct Securities
◦ A primary security is a security issued by non-financial economic
units.
Equity/Ordinary shares: They are ownership securities and represent risk capital.
Debentures: Debentures are medium- to long-term debt instruments used by large
companies to borrow money.
Preference shares: A preference share is a hybrid security and shares the features of both
equity and debentures. It combines both ownership and creditorship privileges.
Financial Assets/securities/instruments
Secondary/Indirect Securities
In the case of Secondary securities, borrowers borrow funds from
the financial market through indirect means, such as through a
financial intermediary.
Mutual funds
Policies of insurance companies
Deposits of banks
A major advantage of indirect securities is that the pooling of funds by a financial intermediary
leads to a number of indirect and derived benefits such as convenience, lower risk and expert
management.
Financial Assets/Securities/Instruments
Derivatives/Derivative Instruments
A security whose price is dependent upon or derived from one or
more underlying assets.
◦ Its a contract between two or more parties.
◦ Its value is determined by fluctuations in the underlying asset.
◦ The most common underlying assets include stocks, bonds, commodities, currencies and market
indexes.
◦ Most derivatives are characterised by high leverage.
◦ These instruments are generally used as an instrument to hedge risk.
◦ Commonly used derivative contracts are forwards, futures and options.
Thank You…

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Indian financial system~prasad

  • 1. Indian Financial System Prasad S Assistant Professor Sree Sankara College Kalady Ernakulam – 683 574 Kerala
  • 2. The Financial System An institutional framework existing in a country to enable financial transactions A system that establishes efficient and smooth linkage between depositors and investors
  • 3. The Financial System The Financial System composed of 1. Financial Markets ◦ Money Market, Capital Market, Forex Markets etc. 2. Financial Institutions ◦ Banking and non banking financial institutions. 3. Financial Securities ◦ Loans, deposits, equity shares, bonds, debentures etc. 4. Regulatory agencies ◦ RBI, SEBI, IRDA etc.
  • 4. Financial Markets Financial markets facilitate the trade in financial products The primary role of financial markets is to intermediate resources from savers to investors. Allocates the resources in an efficient manner among competing uses in the economy ….contributing to growth both through increased investment and through enhanced efficiency in resource use.
  • 5. Financial Markets Money markets, which provide short term debt financing and investment. Capital markets deals with long term funds. Foreign exchange markets, which facilitate the trading of foreign exchange. There will be various submarkets in each of these components Commodity markets, which facilitate the trading of commodities. Derivatives markets, which provide instruments for the management of financial risk. Insurance markets, which facilitate the redistribution of various risks.
  • 6. Money Market Money market is market for short term funds Money Market Organised Unorganised Call Money Market Bill Market Bank loans Treasury Bills Commercial Bills Hunidies Loans from IBs etc. Organised Call Money Market Bank loans CPs CDs RBI
  • 7. Capital Market Market for long term funds Capital Market Institutions • IFCI • SFCs • IDFCs • Investment Banks • Mutual Funds • Marchant banks • Stock Exchanges • Underwriters Market Primary • Equity Share • Preference Shares • Bonds • Debentures • Mutual Funds • Depository Receipts Secondary Instruments SEBI
  • 8. Foreign Exchange Market Market for currencies of different countries The organisational set up within which individuals, financial institutions, firms, orgnaisations, governments buy and sell foreign currencies. ▪It is the largest market in the world ▪No specific meeting places ▪Twenty four hour market ▪Cash and other short term credit instruments used as instruments of forex transitions.
  • 9. Financial Institutions Banking and Non-banking financial institutions Banking institutions such as commercial banks collect money from depositors directly and lend to investors or borrowers. Non-banking institutions such as LIC, UTI are engaged in obtaining funds from depositors indirectly. There are special purpose institutions like NABARD, EXIM Bank which are engaged in providing financial assistance for specific purposes and sectors to bring about a desired pattern of development
  • 10. Financial Institutions Banking Institutions ◦ Commercial banks ◦ Cooperative banks ◦ Regional Rural banks Non-banking Institutions ◦ Asset finance companies ◦ Housing finance companies ◦ Venture capital funds ◦ Merchant banking organisations ◦ Credit rating agencies ◦ Factoring and forfeiting organisations ◦ Stock broking firms ◦ Depositories
  • 11. Financial Assets/securities/instruments Primary Securities, Secondary Securities, Derivative Instruments Primary/Direct Securities ◦ A primary security is a security issued by non-financial economic units. Equity/Ordinary shares: They are ownership securities and represent risk capital. Debentures: Debentures are medium- to long-term debt instruments used by large companies to borrow money. Preference shares: A preference share is a hybrid security and shares the features of both equity and debentures. It combines both ownership and creditorship privileges.
  • 12. Financial Assets/securities/instruments Secondary/Indirect Securities In the case of Secondary securities, borrowers borrow funds from the financial market through indirect means, such as through a financial intermediary. Mutual funds Policies of insurance companies Deposits of banks A major advantage of indirect securities is that the pooling of funds by a financial intermediary leads to a number of indirect and derived benefits such as convenience, lower risk and expert management.
  • 13. Financial Assets/Securities/Instruments Derivatives/Derivative Instruments A security whose price is dependent upon or derived from one or more underlying assets. ◦ Its a contract between two or more parties. ◦ Its value is determined by fluctuations in the underlying asset. ◦ The most common underlying assets include stocks, bonds, commodities, currencies and market indexes. ◦ Most derivatives are characterised by high leverage. ◦ These instruments are generally used as an instrument to hedge risk. ◦ Commonly used derivative contracts are forwards, futures and options.