Financial

market and
Institutions
Table of Content:

Financial System

Financial market

Regulatory Bodies

Other Agents in Financial Market

Financial System-A financial system is

a system that allows the exchange of
funds between financial market
Participants such as lenders, investors,
and borrowers.
In other words, financial systems can
be known wherever there exists the
exchange of a financial medium
(money) while there is a reallocation of
funds into needy areas (financial
markets, business firms, banks) to
utilize the potential of ideal money and
place it in use to get benefits out of it.
This whole mechanism is known as a
financial system.

According to the structural approach,

the financial system of an economy
consists of three main components:

Financial markets
Financial intermediaries
(institutions)
Financial regulators
Financial market-
Financial markets are the markets
where individuals and organisations
with surplus funds lend funds to other
individuals and organisations that
want to borrow.

This function is shown

diagrammatically below

Those who have saved and are lending

funds, the 'lender savers', are on the
left, and those who must borrow funds
to finance their spending, the
'borrower spenders', are on the right.
The principal lender savers are
households, as well as overseas
institutions and their governments,
who sometimes also find themselves
with excess funds and so lend them
out.

The most important

borrower-spenders are corporations
and governments, although individuals
also borrow to finance the acquisition
of houses or cars. The arrows show
that funds flow from lender-savers to
borrower-spenders via two routes.
The first route is the direct finance
route at the bottom of the diagram,
when borrowers borrow funds directly
from lenders in financial markets by
selling them securities (also called
financial instruments),which are
claims on the borrowers' future
income or assets .
The channelling of funds from savers
to spenders is a crucial function for
the economy because the people who
save are frequently not the same
people who have profitable investment
opportunities available to them, ie the
entrepreneurs. Without financial
markets, it is hard to transfer funds
from a person with surplus funds and
no investment opportunities to one
who has investment opportunities but
no funds. They would be unable to
transact and both would be worse off
as a result. Financial markets are thus
essential to promoting economic
efficiency.
Financial markets can be classified in
several ways. We will look at the main
classifications below in turn.

Capital and money market

Primary and secondary market

Capital market- Capital market are

market for trading in long-term
financial instruments such as equities
and corporate bonds. Time horizon of
more than one year.
The various participants in the capital
markets are summarised in the
diagram below.
Money market - Money markets are
markets for short-term instruments
and have a maturity of up to one year.
The money markets are operated by
the banks and other financial
institutions. Although the money
markets largely involve borrowing and
lending by banks, as well as the
Government, they are involved in
money market operations .Viz RBI,
Govt.of India , Commercial banks.

Primary markets enable organisations

to raise new finance, by issuing new
shares or new bonds. a company must
have Public company status (be a
publicly listed company ) to be allowed
to raise finance from the public on a
capital market.
Secondary Market- secondary markets
enable existing investors to buy and
sell existing investments, should they
wish to do so. The marketability of
securities is a very important feature
of the capital markets, because
investors are more willing to buy
stocks and shares if they know that
they could sell them easily, should they
wish to.

Regulatory Bodies
A regulatory agency or regulatory body
is a government authority that is
responsible for exercising autonomous
dominion over some area of human
activity in a licensing and regulating
capacity.
Reserve bank of India (RBI)
Securities and Exchange board of India
(Sebi)

Reserve bank of India (RBI)

The Reserve Bank of India (RBI) is the
nation’s central bank. Since 1935, RBI
began operations, and stood at the
centre of India’s financial system, with
a fundamental commitment to
maintaining the nation’s monetary and
financial stability.
From ensuring stability of interest and
exchange rates to providing liquidity
and an adequate supply of currency
and credit for the real sector; from
ensuring bank penetration and safety
of depositors’ funds to promoting and
developing financial institutions and
markets, and maintaining the stability
of the financial system through
continued macro-financial
surveillance, the Reserve Bank plays a
crucial role in the economy. Decisions
adopted by RBI touch the daily life of
all Indians and help chart the country’s
current and future economic and
financial course.
The origin of the Reserve Bank can be
traced to 1926, when the Royal
Commission on Indian Currency and
Finance—also known as the
Hilton-Young Commission—
recommended the creation of a central
bank to separate the control of
currency and credit from the
government and to augment banking
facilities throughout the country. The
Reserve Bank of India Act of 1934
established the Reserve Bank as the
banker to the central government and
set in motion a series of actions
culminating in the start of operations
in 1935. Since then, the Reserve Bank’s
role and functions have undergone
numerous changes—as the nature of
the Indian economy has changed.

Today’s RBI bears some resemblance to

the original institution, but the
mission has expanded along with the
deepened, broadened and increasingly
globalised economy.
Over the years, RBI’s specific roles and
functions have evolved. However, there
have been certain constants, such as
the integrity and professionalism with
which the Reserve Bank discharges its
mandate.

RBI at a Glance

● Managed by Central Board of

Directors
● India’s monetary authority
● Supervisor of financial system
● Issuer of currency
● Manager of foreign exchange
reserves
 ● Banker and debt manager to
government
● Supervisor of payment system
● Banker to banks
● Maintaining financial stability
● Developmental functions
● Research, data and knowledge
sharing

SECURITIES AND EXCHANGE BOARD

OF INDIA (SEBI)
Establishment
The Securities and Exchange Board of
India was established on April 12, 1992
in accordance with the provisions of
the Securities and Exchange Board of
India Act, 1992.
Preamble
The Preamble of the Securities and
Exchange Board of India(Sebi)
describes the basic functions of the
Securities and Exchange Board of India
as “to protect the interests of investors
in securities and to promote the
development of, and to regulate the
securities market and for matters
connected therewith or incidental
thereto”.
Role of sebi
1. SEBI has drawn up a programme for
inspecting stock exchanges. Under this
programme, inspections of some stock
exchanges have already been carried
out. The basic objective of such
inspections is to improve the
functioning of stock exchanges.
2. SEBI has been authorised to conduct
inspections of various mutual funds. In
this respect, it has already undertaken
inspection of some mutual funds.
Various deficiencies of the individual
mutual funds have been pointed out in
the inspection reports and corrective
steps undertaken to rectify these
deficiencies.
Etc.

Other Agents in Financial Market

Financial Institutions (Commercial
bank ,Cooperative Bank ,Merchant
Banking, NBFC )
Financial Intermediaries (Broker ,
dealers )
Insurance Companies
A Big Big Thank You !
Anmol Chugh On march 2022