2. FINANCIAL SYSTEM
The financial system of a country is a system that
allows the exchange of funds between lenders,
investors and borrowers. It helps in creation of wealth
by linking saving with investment for economic
development of the country. It facilitate the flow of
funds from the households (savers) to business
firms aid in wealth creation and development of both
the parties.
3. FUNCTIONS OF INDIAN
FINANCIAL SYSTEM
• It bridges the gap between savings and investment through efficient mobilization
and allocation of surplus fund
• It helps a business in capital formation
• It helps in minimizing risk and allocating risk efficiently
• It helps a business to liquidate tied up funds
• It facilitates financial transactions through provision of various
financial instruments
• It facilitate trading of financial assets/instruments by developing and regulating
financial markets
4. IMPORTANCE OF INDIAN FINANCIAL
SYSTEM
• It accelerates the rate and volume of savings through provision
of various financial instruments and efficient mobilization of
savings
• It aids in increasing the national output of the country by
providing funds to corporate customers to expand their
respective business
• It protects the interests of investors and ensures smooth
financial transactions through regulatory bodies such as RBI,
SEBI etc.
• It helps economic development and raising the standard of
living of people
7. FINANCIAL INSTITUTION
v Financial institution is an institution that
provides financial services.
v Financial services refer to the activity of transfer
of financial resources from the savers or
investors to the users or borrowers.
v Thus, essentially financial institutions are the
intermediaries between the
savers and borrowers of the money.
8. ROLE OF FINANCIAL INSTITUTION IN
THE FINANCIAL SYSTEM
• Financial institutions mobilize the savings of the public
• They provide credit facility to the needy persons
• They render various other financial services like transfer of funds from
one place to another, payment mechanism, etc.,
• Financial institutions enable transferring of funds from investors to
corporate customers and other business entrepreneurs.
• They facilitate the flow of money from one corner of the country to
another corner.
• They enable achievement of economy of large scale operations by
providing funds for large scale business activities.
• They reduce the cost of transaction by increasing the number of
transactions.
• They reduce the risk of loss of capital through diversification of funds to
different industries.
11. FINANCIAL MARKETS
A financial market is a market in which people trade financial securities and derivatives such
as futures and options at low transaction costs. Securities include stocks and bonds, and
precious metals.
Basic classification of Financial markets:
• Capital Market:
The market for companies and individuals who want to grow in tandem. It’s a platform
where public and private sectors often sell their stakes to raise fund in order to feed their
projects in hand. The assets under this market don’t have any fixed maturity time.
• Money Market:
A major platform in financial market where securities and financial instruments with short-
term maturities are traded is called the money market. Financial assets like treasury bills,
certificates of deposits, commercial paper and bankers' acceptance are some of the short-
term debt securities traded in the money market
13. FUNCTIONS OF FINANCIAL MARKETS
• •It provides facilities for interaction between the Investors and
borrowers.
• •It provides security to dealings in financial assets.
• •It provides information related to the financial markets to the investors
and borrowers.
• •It ensure liquidity by providing a mechanism for an investor to sell their
financial assets.
14. FINANCIAL
INSTRUMENTS
Money Market Instruments
Capital Market Instruments
Financial instruments are
monetary contracts between
parties. They can be created,
traded, modified and settled. They
can be cash, evidence of an
ownership interest in an entity, or
a contractual right to receive or
deliver cash.
15. MONEY MARKET
INSTRUMENTS
• MONEY MARKET CAN BE DEFINED AS A
MARKET FOR SHORT-TERM MONEY
AND FINANCIAL ASSETS THAT ARE NEAR
SUBSTITUTES FOR MONEY.
17. FINANCIAL
SERVICES
Financial services are the
economic services provided by
the finance industry, which
encompasses a broad range of
businesses that manage money,
including credit unions, banks,
creditcard companies, insurance
companies, accountancy
companies, consumer finance
companies, stock brokerages,
investment funds, individual
managers and some
government-sponsored
enterprises
18. MAIN SECTORS OF
FINANCIAL SERVICE
INDUSTRY
BANKING COMPANIES
FINANCIAL INSTITUTIONS
NON BANKING FINANCIAL COMPANY
19. MAIN SECTORS OF FINANCIAL
SERVICE INDUSTRY
BANKING COMPANIES :
Section – 5 of Banking Regulation Act , 1949 defines banking as , “ the accepting for the purpose of
lending or investments , of deposits of money from the public repayable on demand or otherwise and
withdrawable by cheque , draft , order or otherwise .”
FINANCIAL INSTITUTIONS :
Non banking institutions / financial companies engaged in any of the following activities :Financing by
way of loans , advances and so onAcquisition of shares / stocks / bonds / debentures / securitiesHire
purchase and consumer creditAny class of insurance , stock broking etc.
NON – BANKING FINANCIAL COMPANY [NBFC] :
It means and includes :Financial institution which is a companyA non – banking institution which is a
company and has as its principal business the receiving of deposits or lending .
20. KINDS OF FINANCIAL SERVICES
ASSET
BASED/ FUND
BASED
FEE BASED /
ADVISORY
SERVICES
21. ASSET / FUND BASED SERVICES
EQUIPMENT LEASING / LEASE
FINANCING
HIRE PURCHASE
BILL DISCOUNTING
VENTURE CAPITAL
HOUSING FINANCE
INSURANCE SERVICES
FACTORING
MERCHANT BANKING
CREDIT RATING
STOCK BROKING
FEE BASED ADVISORY SERVICES
KINDS OF FINANCIAL SERVICES
22. SUMMARY
• It helps to promote the development of
weaker section of the society through rural
development banks and co-operative societies
• It helps corporate customers to make better
financial decisions by providing effective financial as
well as advisory services
• It aids in Financial Deepening and Broadening:
• Financial Deepening – It refers to the increase
in financial assets as a percentage of GDP
• Financial Broadening – It refers to increasing number
