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FUNCTIONS :
A) Financial Services
Financial Services are concerned with the design and delivery of financial instruments,
advisory services to individuals and businesses within the area of banking and related
institutions, personal financial planning, leasing, investment, assets, insurance etc. These
services includes
1. Banking Services: Includes all the operations provided by the banks including to the
simple deposit and withdrawal of money to the issue of loans, credit cards etc.
2. Foreign Exchange services: Includes the currency exchange, foreign exchange
banking or the wire transfer.
3. Investment Services: It generally includes the asset management, hedge fund
management and the custody services.
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C) Financial Markets
The financial markets are classified into two groups:
a) Capital Market: A capital market is an organised market which provides long-term
finance for business. Capital Market also refers to the facilities and institutional
arrangements for borrowing and lending long-term funds. Capital Market is divided
into three groups:
b) Corporate Securities Market: Corporate securities are equity and preference shares,
debentures and bonds of companies. The corporate security market is a very
sensitive and active market. It can be divided into two groups: primary and
secondary.
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D) Financial Intermediaries
A financial intermediary is an institution which connects the deficit and surplus money. The
best example of an intermediary is a bank which transforms the bank deposits to bank
loans. The role of the financial intermediary is to distribute funds from people who have
extra inflow of money to those who don’t have enough money to fulfil the needs. Functions
of Financial Intermediary are are as follows:
1. Maturity transformation: Deals with the conversion of short-term liabilities to long
term assets.
2. Risk transformation: Conversion of risky investments into relatively risk free ones.
3. Convenience denomination: It is a way of matching small deposits with large loans
and large deposits with small loans.
Financial Intermediaries are divided into two types:
Depository institutions: These are banks and credit unions that collect money from the
public and use that money to advance loans to financial customers.
Non-Depository institutions: These are brokerage firms, insurance and mutual funds
companies that cannot collect money deposits but can sell financial products to financial
customers.
The term "market" is sometimes used for what are more strictly exchanges,
organizations that facilitate the trade in financial securities, e.g., a stock exchange or
commodity exchange. This may be a physical location (like the NYSE, BSE, LSE, JSE) or
an electronic system (like NASDAQ).
Much trading of stocks takes place on an exchange; still, corporate actions (merger,
spinoff) are outside an exchange, while any two companies or people, for whatever
reason, may agree to sell stock from the one to the other without using an exchange.
Trading of currencies and bonds is largely on a bilateral basis, although some bonds
trade on a stock exchange, and people are building electronic systems for these as
well, similar to stock exchanges.
The financial markets are classified into two groups:
1) Capital Market: A capital market is an organised market which provides long-term
finance for business. Capital Market also refers to the facilities and institutional
arrangements for borrowing and lending long-term funds. Capital Market is divided
into three groups:
a) Corporate Securities Market: Corporate securities are equity and preference shares,
debentures and bonds of companies. The corporate security market is a very
sensitive and active market. It can be divided into two groups: primary and
secondary.
b) Government Securities Market: In this market government securities are bought
and sold. The securities are issued in the form of bonds and credit notes. The buyers
of such securities are Banks, Insurance Companies, Provident funds, RBI and
Individuals.
c) Long-Term Loans Market: Banks and Financial institutions that provide long-term
loans to firms for modernization, expansion and diversification of business. Long-
Term Loan Market can be divided into Term Loans Market, Mortgages Market and
Financial Guarantees Market.
2) Money Market :Money Market is the market for short-term funds. The money market is
divided into two types: Unorganised and Organised Money Market.
a) Unorganized Market: It consists of Money lenders, Indigenous Bankers, Chit Funds,
etc.
b) Organized Money Market: It consists of Treasury Bills, Commercial Paper, Certificate
Of Deposit, Call Money Market and Commercial Bill Market. Organised Markets work
as per the rules and regulations of RBI. RBI controls the Organized Financial Market
in India.
3) Derivatives markets: which provide instruments for the management of financial risk.
4) Futures markets: which provide standardized forward contracts for trading products at
some future date; see also forward market.
5) Foreign exchange markets: which facilitate the trading of foreign exchange.
6) Spot market
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9) Custodian to foriegn exchange:The Reserve Bank has the custody of the country’s
reserves of international currency, and this enables the Reserve Bank to deal
with crisis connected with adverse balance of payments position.
10) Detection of fake currency:In order to curb the fake currency menace, RBI has
launched a website to raise awareness among masses about fake notes in the
market.
FUNCTIONS OF SEBI:
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The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three
important functions. These are:
1. Protective functions
2. Developmental functions
3. Regulatory functions.
1. Protective Functions:
These functions are performed by SEBI to protect the interest of investor and provide safety
of investment.
a) It Checks Price Rigging.
b) It Prohibits Insider trading.
c) SEBI prohibits fraudulent and Unfair Trade Practices.
d) SEBI undertakes steps to educate investors so that they are able to evaluate
the securities of various companies and select the most profitable securities.
e) SEBI has issued guidelines to protect the interest of debenture-holders
wherein companies cannot change terms in midterm.
f) SEBI is empowered to investigate cases of insider trading and has provisions
for stiff fine and imprisonment.
2. Developmental Functions:
These functions are performed by the SEBI to promote and develop activities in stock
exchange and increase the business in stock exchange. Under developmental categories
following functions are performed by SEBI:
a) SEBI promotes training of intermediaries of the securities market.
b) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable
approach in following way.
c) SEBI has permitted internet trading through registered stock brokers.
d) SEBI has made underwriting optional to reduce the cost of issue.
e) Even initial public offer of primary market is permitted through stock exchange.
3. Regulatory Functions:
These functions are performed by SEBI to regulate the business in stock exchange. To
regulate the activities of stock exchange following functions are performed:
a) SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.
b) These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.
c) SEBI registers and regulates the working of stock brokers, sub-brokers, share
transfer agents, trustees, merchant bankers and all those who are associated with
stock exchange in any manner.
d) SEBI registers and regulates the working of mutual funds etc.
e) SEBI regulates takeover of the companies.
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