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1. FINANCIAL
SYSTEM
BHOOMI LODAYA
MBA – II [FINANCE]

2. Introduction
 An institutional framework existing in a country to
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 financial system
(RBI, SEBI, IRDA, FMC)

3. (Contd)
 Enable channelizing funds from surplus
units to deficit units
 Instruments for savers
 Instruments for borrowers
 Businesses, governments too raise funds
through issuing of bonds, Treasury bills,
etc.

4. FEATURES
 It provides an Ideal linkage between
depositors savers and Investors Therefore it
encourages savings and investment.
 Financial system facilitates expansion of
financial markets over a period of time.
 Financial system should promote deficient
allocation of financial resources of socially
desirable and economically productive
purpose.
 Financial system influence both quality and the
pace of economic development.

5. Why financial system?
 Financial systems help the organization to
make sound decisions based on cash flow and
available resources
 Monitoring funds, or comparing actual income
and expenses versus budgeted amounts,
helps managers ensure that the necessary
funds are in place to complete an activity
 Transparency, clear planning and realistic
projections contributes to the credibility of the
organization.

6. (contd)
 Most governments require that registered,
charitable organizations create accounts that
track income and expenses.
 Establishing financial controls and clear
accounting procedures help ensure that funds
are used for intended purposes.
 Funders require reports that demonstrate that
grants were used for intended purposes.

7. Financial System
Non- Organized
Organized
Money lenders
Regulators Local bankers
Financial Institutions Traders
Financial Markets Landlords
Financial services Pawn brokers
Chit Funds

8. FUNCTIONS
 Payment System
 Pooling of Funds
 Transfer of Resources
 Risk Management
 Price Information for Decentralized Decision Making
 Price Discovery Process
 Liquidity
 Fungibility