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INTRODUCTION INDIAN FINANCIAL
SYSTEM
Indian financial system consists of financial market,financial institutions, financial instruments orproducts and financial instruments.
The economic development of a nation is dependingon the progress of the economic units, broadlyclassified into corporate sector, government andhousehold sector. Some of the sector may be insurplus and some of them may in deficit.
A financial system or financial sector functions as anintermediary and facilitates the flow of funds fromthe areas of surplus to the areas of deficit.
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An Introduction to Financial
MarketIn economics, a financial market is amechanism that allows people to easily buy &sell (trade) financial securities ( such as stocks& bonds ), commodities ( such as preciousmetals or agricultural goods ).
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FINANCIAL
SYSTEM
FINANCIAL
INSTITUTION
FINANCIIAL
SERVICES
FINANCIAL
INSTRUMENTS
FINANCIAL
MARKET
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COMPONENTS OF FINANCIAL SYSTEM
1. FINANCIAL INSTITUTION :-Financial institutions are the intermediaries who facilitates smoothfunctioning of the financial system by making investors and
borrowers meet. They mobilize savings of the surplus units andallocate them in productive activities promising a better rate ofreturn.
2. FINANCIAL INSTRUMENTS:-financial instruments represent a claim against the future income andwealth of others. It will be a claim against a person or an institutions,for the payment of the some of the money at a specified future date.
for e.g:- shares, debenture, bonds, fixed deposits
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CONTI..
3. FINANCIAL SERVICES:-Financial services is any kind of services of a financial nature offered by afinancial service provider. All Banking & Insurance related services areinclude
4.FINANCIAL MARKET:-Finance is a prerequisite for modern business and financial institutions play
a vital role in economic system. It's through financial markets the financialsystem of an economy works. The main functions of financial markets are:
1. to facilitate creation and allocation of credit and liquidity;
2. to serve as intermediaries for mobilization of savings;
3. to assist process of balanced economic growth;
4. to provide financial convenience
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FINANCIAL MARKET
A Financial market deals in financial assets &instruments such as currency, deposits, cheque &
bill etc.
financial transactionsthrough the creation,saleand transfer of financial securities, Part of the
economy, Companies and governments need to
raise capital,Allow investors toinvest in financialsecurities and earn a reasonable rate of return.
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FINANCIAL
MARKET
CALLMONEYMARKRT
SECONDARYMARKET
PRIMARYMARKET
CAPITALMARKET
GOVT.SECURITIESMARKET
MONEYMARKET
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I.Capital Market
Capital Market is a market for financialinvestments that are direct or indirect claimsto capital.
It comprises of the institutions andmechanisms through which funds are pooledand made available to business, government
and individuals
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A. PRIMARY MARKET
Primary market is a market in which companies issues shares ordebentures to the investors directly.
This is the market for new long term equity capital. The primarymarket is the market where the securities are sold for the first
time. Therefore it is also called the new issue market
If public limited company issues shares for the 1st time, it isknown as INITIUAL PUBLIC OFFERING (IPO)
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B.SECONDARY MARKET
Secondary market is a market in which old shares or shares alreadyissued by the companes are traded. It is stock market.
It is also orgnised market which is regulated by the govt. throughSECURITIES EXCHANGE BOARD OF INDIA
Primary market will not function withoutwell-organized andefficient secondarymarket, Must have depth and width
characteristics:
Liquid
Low transaction costs
Incorporates all available information
Well regulated
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II.MONEY MARKET
The money market is a market for short-term financial assets thatare close substitutes of money.
The most important feature of a money market instrument is that itis liquid and can be turned over quickly at low cost and provides an
avenue for equilibrating the short-term surplus funds of lenders andthe requirements of borrowers
money markets involves Treasury bills, commercial paper, bankers'acceptances, certificates of deposit, federal funds, and short-livedmortgage- and asset-backed securities
It provides liquidity funding for the global financial system
It is regulated by RBI
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A.CALL MONEY MARKET
.The call/notice money market forms an important segment of theIndian Money Market. Under call money market, funds aretransacted on overnight basis and under notice money market,funds are transacted for the period be 2 days and 14 days
The call money is the money lent for one day
Deals with overnight borrowing and lending
Provides funds that can be used to conduct transactions betweenbanks, or with other money market dealers
The call money loan essentially works in the same manner as a dayto day loan.
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B.GOVT.SECURITIES MARKET
TheGovernment securities market consists of securities issued bythe State government and the Central government.
Government securities include Central Government securities,
Treasury bills and State Development Loans. They are issued in order to finance the fiscal deficit and managing
the temporary cash mismatches of the Government. All entitiesregistered in India like banks, financial institutions, Primary Dealers,firms, companies, corporate bodies, partnership firms, institutions,
mutual funds, Foreign Institutional Investors, State Governments,Provident Funds, trusts, research organisations, Nepal Rashtra bankand even individuals are eligible to purchase Government Securities.
They are generally by banks and institutions with the Reserve Bankof India in Subsidiary General Ledger accounts
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Types of Financial Market
Financial Market
Capital market Money MarketCommodity
Market
DerivativesMarket
InsuranceMarket
Foreign ExchangeMarket
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TYPES OF FINANCIAL MARKET
CAPITAL MARKETS - Which provide financing through the issuance ofshares or common stock ,and enable subsequent trading
COMMODITY MARKETS which facilitate the trading of commodities.
MONEY MARKETS which provide short term debt financing andinvestment.
DERIVATIVE MARKETS which provide instruments for themanagement of financial risk
INSURANCE MARKETS which facilitate redistribution of various
risks.FOREIGN EXCHANGE MARKETS -which facilitate the trading of
foreign exchange.
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Conclusion
Investors looks at superior returns and measured risk
therefore he has to select a dynamically balanced asset
allocation mix consisting of the different investment
options available in the Financial Market. Thus Financial
market Acts as a backbone of financial structure of anycountry. Acts as an interface between prospective buyers
and sellers. Improves overall business liquidity. Helps in
raising capital and improving international trade..
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