A STUDY OF EQUITY ON CAPITAL MARKETS
INDIAN FINANCIAL SYSTEM
The financial system or financial sector of any country consists of specialized and non-specialized financial institutions, organized and unorganized financial markets, andfinancial instruments and services, which facilitate transfer of funds. The word “system” inthe term “financial system” implies a set of complex and closely connected or intermixedinstitution, agents, practices, markets, transactions, claims, and liabilities in the economy.The financial system is concerned about money, credit, and finance-the terms intimatelyrelated yet somewhat different from each other.Savings mobilization and promotion of investment arc functions of the stock and capitalMarkets, which are a part of the organized financial system in India. The objective of allEconomic activity is to promote the well being and standard of living of the people, ThisDepends on the income and distribution of income in terms of real goods and services inthe economy.The financial inputs emanate from the financial system, while real goods and services part of the real system. The interaction between the real system (goods and services) andThe financial system (money and capital) is necessary for the productive process. Trading inmoney and monetary assets constitute the activity in the financial markets and are referred toas the financial system.The term "liquidity" is used to refer to cash, money and nearness to cash. Money andmonetary assets are traded in the financial system. Thus, provision of liquidity and trading inliquidity are the major functions of the financial system. While cash creation is the functionof the RBI, banks do credit creation and financial institutions including the RBI, banks andterm-leading institutions, deal in claims on money or monetary assets. These institutions areall a part of the financial system.The financial system is also geared to the mobilization of savings and canalization of thesesavings into productive activity. Through appropriate differentials in the rate of return andother incentives, funds flow from less productive to more productive activities. The efficientfunctioning of the financial system facilitates these flows of funds.