Meaning & Constituents

Indian Financial Systems

Definition
Constituents

 Formal (MOF,RBI,SEBI and other regulatory bodies)

 Financial Institutions Banking and Non Banking (Banking (Creators) and Non
Banking Financial Institutions (Purveyors) [EXIM, IDBI, SIDBI ETC.]

 Financial Markets

 Money market – for Short term securities

 Capital market – for long term securities

 Also classified as Primary and Secondary Markets (OTC and exchange traded
market)

OTC – spot trades are negotiated and traded for immediate delivery and payment
while in the exchange market trading
 Informal (Neighbors’, relatives, landlords, traders)
Financial Instruments

 A financial instrument is a claim against a person or an

institution for the payment at a future date a sum of
money and / or a periodic payment in the form of interest
or dividend.

 Primary Securities – Equity Shares & Debentures

 Secondary Securities- Bank Deposits, Mutual Funds,

Insurance Policies

 Financial Instruments differ in terms of marketability,

liquidity, reversibility, return risk etc.
Financial Services:

 Financial intermediaries provide key financial

services such as merchant banking, leasing,
hire purchase, credit rating.
Financial Regulators

 RBI
 SEBI
Functions of the financial system

 To link the savers and investors thereby helping mobilizing

and allocating the savings efficiently and effectively;

 Selecting projects to be selected and evaluation of

performance of investments;

 Makes available price related information;

 Helps in creation of a financial structure that lowers the cost

of transactions. This has beneficial influence on the rate of
returns to savers.