Assignment:1

Indian Financial System

(Aaysha Agrawal. 20021021614)

What do you understand about financial system? How financial system and
economy are related to each other?

A financial system is a collection of institutions, such as banks, insurance firms, and stock exchanges,
that allow for the exchange of funds. In general sense, it is a relationship between seekers of funds
(Mainly business fund and Government) & Suppliers (Mainly households) who help in flow of money
in terms of savings & Income & financial services.

Borrowers, lenders, and creditors are transferring current Funds to support enterprises for
consumption or productive investment, and look for a return on their financial holdings. In addition,
the financial system contains a collection of regulations and procedures that creditors and lenders
utilise to determine which projects are funded, who funds the projects, and the extent of a financial
transaction.

Components of a financial system-

1- Financial Markets-forex market, secondary or primary market, derivative market etc.
2- Financial Products- insurance, shares, loans etc.
3- Financial Participants- regulatory bodies, issuers, investors
4- Financial Services- Consultancy, loans etc.
5- Financial Regulators-insures smooth transfer between suppliers and seekers like Reserve
bank of India, etc.

Structure of Modern Financial System-

1- Financial Market-
a. capital market-
1-Primary Market-Debt market
2-secondary Market-Equity Market

b) Money market-
• Treasury bills
• certificate of deposit
• call /notice money
• commercial papers.
2- Financial Instruments
• foreign exchange
• money market instruments
• depository receipts
• forex market
• derivates market

3-Financial Participants-
• issuers
• investors
• brokers and dealers
• registrars

4- Financial Regulators
• reserve bank of India
• markets securities and exchange board of India
• Federal Reserve & Pension Company
• Security Exchange commission
• Bank of England/ FCA
• FCA/ Prudential Regulatory authorities.

5-financial services
• mergers and acquisitions
• research and advise
• investment banking
• asset management
• venture capital
• specialised financial solutions

Financial system and Economy

Financial system encourages and advice to the household supply more and more funds. It
helps in savings in the funds from the borrowers or seekers and establish a link between the
savage in secret of the fund which facilitate the capital formation. This system bridges
between savers and seekers. It helps in price discovery. Financial system helps in Risk
Management & maintain Liquidity.