Financial System: A financial system is concerned about money, credit and finance.

These three terms are closely related yet are not synonymous & are different from each other in certain respects. Financial system consists of financial institutions, financial market, financial instruments and financial services.

and financial claims Financial System 2 .Financial System of any country consists of financial markets. financial intermediation and financial instruments or financial products Flow of funds (savings) Seekers of funds (Mainly business firms and government) Suppliers of funds (Mainly households) Flow of financial services Incomes .

Organized Indian Financial System Financial Services Financial Instruments Financial Markets Financial Intermediaries Forex Market Capital Market Money Market Credit Market Primary Market Secondary Market Money Market Instrument Capital Market Instrument 3 .

As against a real transaction that involves exchange of money for physical goods or services. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend. It has two major parts-one is money market another is capital market. . Thus A financial market is simply a market for transacting in financial assets. a financial transaction involves creation or transfer of a financial asset. you will participate in financial markets in some way or the other.Financial Markets • A Financial Market can be defined as the market in which financial assets are created and/or transferred. If you buy or sell financial assets.

By real assets we mean such thing as houses buildings equipment inventories and durable goods.Cont. corporations and governments during a period of time are available for investment in certain assets. . • The financial markets exist in an economy because the savings of various individuals.

Classification of financial markets: There are different ways of classifying financial markets. Most popular way is to classify financial markets by the maturity of claims. »Money Market »Capital Market .

Since short term financial claims are almost invariably debt claims. The capital market is the market for long term debt instruments and equity instruments. . the money market is the market for short term debt instruments.The market for short term whole sale financial assets is referred to as the money market and the market for long term financial claims is called the capital market. Traditionally the cut off between short term and long term financial has been one year.

Role of Capital Markets • Mobilization of Savings & acceleration of Capital Formation • Promotion of Industrial Growth • Raising of long term Capital • Ready & Continuous Markets • Proper Channelisation of Funds • Provision of a variety of Services 8 .

Indian Capital Market Market Instruments Intermediaries Regulator SEBI Primary Secondary •Brokers •Investment Bankers •Stock Exchanges •Underwriters Hybrid Debt Equity Players CRA Corporate Intermediaries Individual Banks/FI FDI /FII 9 .

Capital Market Instruments Equity Hybrid Debt Equity Shares Preference Shares ADR / GDR Debentures Zero coupon bonds Deep Discount Bonds 10 .