Classification of Financial Market

Classification of Financial Markets 

Organised markets Unorganised markets ± money lenders, indigenous bankers, etc.,

Organised markets 

Capital market Money market

Capital market  

Industrial securities market 1.primary market 2.secondary market Govt securities market Long term loans market 1.term loan market for mortgages for financial guarantees

Importance of capital market 

Important source for the productive use of the economy¶s savings Provides incentives to saving and facilitates capital formation Provides an avenue for investors Facilitates increase in production and productivity in the economy Induce economic growth Expert intermediaries Imp source of technological upgradation

Money market 

Call money market Commercial bill market Treasury bill market Short term loan market

Foreign exchange market  

Transfer purchasing power from one country to another Provides adequate credit facilities Covers foreign exchange risk

Financial Rates of Return 

Peculiar feature is int. rates do not reflect the free market forces Achieves the following 1.enable govt. to borrow comparatively cheaply 2.ensure stability certain sectors through professional lending rates 4.mobilise substantial savings

Recent trends 

Int rates on govt deposits freed Int rates on TB¶s determined by auctions Coupon rates on govt loans revised upwards Int rates on debentures are allowed to be fixed by companies Max rates of int payable on bank deposits(fixed) are freed for deposits of above one year

Financial Instruments 

Primary securities Secondary securities 

Short term securities Medium term securities Long term securities

Characteristics of financial instruments 

Easy transferability Ready market Possess liquidity Possess security value Enjoy tax status Carry risk Facilitate futures trading Less handling costs Risk and return proportionate Maturity period variations

Development of financial system 

Nationalisation of financial institutions    

1935 RBI established as a private inst., nationalised in 1948 1956 SBI nationalised previously known as imperial bank of India 1956 245 insurance companies merged and formed LIC 1969 14 major commercial banks nationalised and 6 in 1980 and GIC re-organised 

Starting Est.

of UTI schemes approved by SEBI

1964 UTI Bank Investor service Security Exchange LTD of development banks IFCI, 1951 SFC, 1955 ICICI (Pvt. Sec) 

1994 Est. UTI UTI 

Establishment 1948 1958

RCI 1964, on 1st July IDBI,1971 IDBI, LIC jointly set up IRCI renamed as IRBI in 1997, now a ltd co. IIBI, 

Institutions 1963 1982

for financing agriculture



for foreign trade EXIM Bank 



for housing finance 1988 NHB SCHIL est. in 1987 Mutual Fund Industry Venture capital institutions 1986 IDBI started VC financing IFCI started a subsidiary Risk Capital and Technical Finance Corporation ICICI and UTI jointly set up Technical Development Information Corporation of India Ltd


Credit rating agencies 


Multiplicity of financial instruments Legislative support

Weakness of Indian Financial System 

Lack of coordination between financial inst Monopolistic market structures Dominance of development banks in industrial financing Inactive and erratic capital market Imprudent financial practice

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