Indian Financial System

UNIT-I Framework of Indian Financial System Financial System Significance, Components, Designs, Nature and Role. Financial System & Economic Development Financial Markets Money and Capital Market, Money Market Instruments. NBFCs/MNBCs/RNBCs/RBI Role, Regulation & Services.

 UNIT-II Derivatives Market Concept, Need & Types. Derivative Market in India, Forward & Future, Contracts, Future pricing, Future Trading Strategies. Options Call and Put options, Time value of options, Volatility Trading. Derivatives Trading in India Factoring and Forfeiting Distinctive functions of factors, Types, Difference between factoring and forfeiting, Legal aspects, Advantages, Factoring V/s. Bills Discounting, International Factoring.

 UNIT-III Consumer Finance and Lease Financing

Bills Discounting Types of Bills, Discounting of Bills, Purchasing of Bills, Drawer & Drawee Bills. Credit Cards Functioning of Credit Cards. Lease Financing : Meaning and Types, Financial EVALUATION from Lessor & Lessee Point of view, Economic, Aspect of Lease. Hire Purchase : Meaning and Legal Aspect/Position. Hire Purchase V/s. Lease Finance, Hire Purchase V/s. Installment payment.

 UNIT-IV Financial Intermediaries

Insurance : Introduction, Significance, , IRDA, Insurance
Intermediaries, Reinsurance, Life Insurance, GeneralInsurance, Pension Fund and Pension Plans Today.

Mutual Funds : SignificanceTypes & Organization,

Association of Mutual Funds in India, UTI Management of Non-Performing Assets, Disinvestment of PSUs

 UNIT-V Credit Rating Need, Rating Methodology, Rating Symbols, Credit Rating Agencies CRISIL, CARE, MOODY, Standard & Poors fifth rating.

Financial System
Financial system can be defined as processes and procedures used by a firm's management to exercise financial control and accountability. In other words, an information system comprised of one or more applications that are used for collecting, processing, maintaining, transmitting, and reporting data about financial events; supporting financial planning, accumulating and reporting cost information of financial statements can be described as financial system.

 The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. The financial system is concerned about credit and finance-these terms are intimately related yet are somewhat different from each other. Indian financial system consists of financial market, financial instruments and financial intermediation.

Indian Financial System

The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector. While performing their activities these units will be placed in a surplus/deficit/balanced budgetary situations. There are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities.

What Is the Role of the Financial System in Economic Development?

Economic development is partially dependent on the financial system to help mediate the transfer of money to areas of the economy that need it most. The financial system has a number of key functions, which help facilitate these shifts in money that are important for sustainable economic growth. Like

 Savings: The financial system allows you to place your excess money into a savings account in a bank of your choice. Keeping your money in a bank safeguards your savings, and the bank pays you interest based on the amount you keep in your account. Loans: Money in deposit accounts, like savings accounts, is used to provide loans for a wide range of projects to people and businesses. Mortgages, car loans and student loans are financed largely by deposits in banks, savings institutions and credit unions. Investments: The financial system also facilitates the transfer of money from investors to businesses. When businesses raise capital, they sell stock to investors. Investors give their money to the company in exchange for ownership in the company.

 Business Growth Businesses may expand their operations or finance growth by issuing debt instruments called bonds. Bonds are bought and sold through the financial system. Bond markets allow businesses to access investor capital to finance their growth, while bond investors have an opportunity to profit from helping finance business expansion.

Government Expenditure Governments may finance programs or deficit spending through the financial system by issuing bonds to raise money. Investors may buy government bonds to own a part of government debt, and collect interest payments from the government. In turn, the government has the money it needs to continue to function.

Definitions of Money Market

According to Crowther, "The money market is a name given to the various firms and institutions that deal in the various grades of near money." According to the RBI, "The money market is the centre for dealing mainly of short character, in monetary assets; it meets the short term requirements of borrowers and provides liquidity or cash to the lenders. It is a place where short term surplus investible funds at the disposal of financial and other institutions and individuals are bid by borrowers, again comprising institutions and individuals and also by the government.

Functions of Money Market

The major functions of money market are given below:1. 2. 3. 4. 5. To maintain monetary equilibrium. It means to keep a balance between the demand for and supply of money for short term monetary transactions. To promote economic growth. Money market can do this by making funds available to various units in the economy such as agriculture, small scale industries, etc. To provide help to Trade and Industry. Money market provides adequate finance to trade and industry. Similarly it also provides facility of discounting bills of exchange for trade and industry. To help in implementing Monetary Policy. It provides a mechanism for an effective implementation of the monetary policy. To help in Capital Formation. Money market makes available investment avenues for short term period. It helps in generating savings and investments in the economy.

http://kalyan-city.blogspot.in/2010/09/money-market-concept-meaning.html

Capital Market
Capital market provides long term debt and equity finance for the government and the corporate sector. It is an institutional arrangement to borrow and lend money for a longer period of time. It consists of financial institutions like IDBI, ICICI, UTI, LIC, etc. These institutions play the role of lenders in the capital market. Business units and corporate are the borrowers in the capital market. Capital market can be classified into primary and secondary markets. The primary market is a market for new shares, where as in the secondary market the existing securities are traded. Capital market institutions provide rupee loans, foreign exchange loans, consultancy services etc.

Significance, Role or Functions of Capital Market

1. Mobilization of Savings : Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. In that sense it activate the ideal monetary resources and puts them in proper investments. Capital Formation : Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation. Provision of Investment Avenue : Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provides diverse investment avenue for the public.

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4. Speed up Economic Growth and Development : Capital market enhances production and productivity in the national economy. As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in, increasing production and productivity in economy by generation of employment and development of infrastructure. 5. Proper Regulation of Funds : Capital markets not only helps in fund mobilization, but it also helps in proper allocation of these resources. It can have regulation over the resources so that it can direct funds in a qualitative manner.

6. Service Provision : As an important financial set up capital market provides various types of services. It includes long term and medium term loans to industry, consultancy services, export finance, etc. These services help the manufacturing sector in a large spectrum. 7. Continuous Availability of Funds : Capital market is place where the investment avenue is continuously available for long term investment. This is a liquid market as it makes fund available on continues basis. Both buyers and seller can easily buy and sell securities as they are continuously available. Basically capital market transactions are related to the stock exchanges. Thus marketability in the capital market becomes easy.

What is the difference between Money Market and Capital Market?

Money market is distinguished from capital market on the basis of the maturity period, credit instruments and the institutions: 1. Maturity Period: The money market deals in the lending and borrowing of short-term finance (i.e., for one year or less), while the capital market deals in the lending and borrowing of long-term finance (i.e., for more than one year). 2. Credit Instruments: The main credit instruments of the money market are call money, collateral loans, acceptances, bills of exchange. On the other hand, the main instruments used in the capital market are stocks, shares, debentures, bonds, securities of the government.

3. Nature of Credit Instruments: The credit instruments dealt with in the capital market are more heterogeneous than those in money market. Some homogeneity of credit instruments is needed for the operation of financial markets. Too much diversity creates problems for the investors. 4. Institutions: Important institutions operating in the' money market are central banks, commercial banks, acceptance houses, nonbank financial institutions, bill brokers, etc. Important institutions of the capital market are stock exchanges, commercial banks and nonbank institutions, such as insurance companies, mortgage banks, building societies, etc.

5. Purpose of Loan: The money market meets the short-term credit needs of business; it provides working capital to the industrialists. The capital market, on the other hand, caters the long-term credit needs of the industrialists and provides fixed capital to buy land, machinery, etc. 6. Risk: The degree of risk is small in the money market. The risk is much greater in capital market. The maturity of one year or less gives little time for a default to occur, so the risk is minimised. Risk varies both in degree and nature throughout the capital market. 7. Basic Role: The basic role of money market is that of liquidity adjustment. The basic role of capital market is that of putting capital to work, preferably to long-term, secure and productive employment.

8. Relation with Central Bank: The money market is closely and directly linked with central bank of the country. The capital market feels central bank's influence, but mainly indirectly and through the money market. 9. Market Regulation: In the money market, commercial banks are closely regulated. In the capital market, the institutions are not much regulated.