financial management - session 3

8/6/2019 Financial Management - Session 3

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yWHAT IS A FINANCIAL SYSTEM?

Transfer of Financial resources from Savers to Borrowers


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FUNCTIONS OF THE FINANCIAL SYSTEM

It provides a payment system for the exchange of goodsand services.

It enables the pooling of funds for undertaking large scale

enterprises. It provides a mechanism for spatial and temporal transfer

of resources.

It provides a way for managing uncertainty and

controlling risk. It generates information that helps in coordinating

decentralised decision making


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The Financial SystemFinancial

Institutions

Demandfor Funds

FinancialMarkets

Supply ofFunds

Securities

Funds

Securities

Funds Funds

Funds

Deposits/Securities Loans


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INDIAN FINANCIAL SYSTEMy FINANCIAL INSTITUTIONS

y

FINANCIAL MARKETS

y FINANCIAL INSTRUMENTS

y FINANCIAL SERVICES


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Financial Institutions

y A Financial institution is an institution that providesfinancial services for its clients or members. Probably themost important financial service provided by financialinstitutions is acting as financial intermediaries. Most

financial institutions are highly regulated by government.Broadly speaking, there are three major types of financial

Institutions

y Deposit-taking Institutions that accept and manage deposits

and make loans, including banks, building societies, creditunions, trust companies, and mortgage loan companies.

y Insurance companies and pension funds.

y Brokers, underwriters and investment funds.


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Financial Market

y A Financial market is a mechanism that allows people to buy and sell(trade) financial securities (such as stocks and bonds), commodities(such as precious metals or agricultural goods), and other fungible itemsof value at low transaction costs and at prices that reflect the efficient-market hypothesis.

y Both general markets (where many commodities are traded) andspecialized markets (where only one commodity is traded) exist. Markets

work by placing many interested buyers and sellers in one "place", thusmaking it easier for them to find each other. An economy which reliesprimarily on interactions between buyers and sellers to allocate resourcesis known as a market economy in contrast either to a command economyor to a non-market economy such as a gift economy.

In finance, financial markets facilitate:y The raising of capital (in the capital markets)y The transfer of risk (in the derivatives markets)y The transfer of liquidity (in the money markets)y International trade (in the currency markets)


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FINANCIALINSTRUMENTSCapital Market Instruments

y Equity Shares

y Preference Sharesy Debentures

y Bonds

y Derivative Instruments


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FINANCIAL SERVICES

y Merchant Banking

y Leasing

y Factoringy Credit Rating

y Depository

yVenture Capital Financing

y Hire Purchase


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Growth and Trends in the Indian

Financial Systemy Emergence of a wide array of Financial Institutions to

provide a variety of services.

ySignificant expansion of the network of commercialbanks and operations of the Financial Institutions.

y Introduction of a variety of schemes and instrumentsfor mobilising savings.

y Remarkable growth in the primary as well as thesecondary segments of the capital market.


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y The End

financial management - session 3

Documents