INDIAN FINANCIAL

SYSTEM & FINANCIAL

MARKETS
COURSE CODE: 18JBS201 NO. OF CREDITS: 02 NO. OF HOURS: 20
Revision Session by Firdaus Khan
firdauskhan.mr@cms.ac.in
DEPT. OF FINANCE, CMS-B SCHOOL
JAIN (DEEMED-TO-BE) UNIVERSITY
Awesome to Reconnect!!!!
AGENDA & GROUND RULES
1. To revise the syllabus with you, not teach!
• So you are requested to interact & answer or clarify doubts. Please be
responsible professionals during the session: Mute/Raise your
hand/Chat. Thank you in advance for your cooperation!
2. To show you how MCQ questions can be set up within topics
3. To bring your attention to fishing for parts of your syllabus
which can be more exciting for MCQs…..caveat
• I hope not to get too boring… you are genuinely most welcome to leave
if you do not find value in the session.
4. We are here, always available for doubt clarification, so reach
out if required.
Don’t know how to prepare for IFS?
INDIAN FINANCIAL SYSTEM
 What is a Financial
FINANCIAL SYSTEM System?
A set of complex & closely-connected or intermixed
-institutions,
-agents,
-practices, Does it transfer funds from savers to borrowers?
-markets, Itcreate
Or transfers
funds from funds from
Issuers to Investors?
Or regulate funds from Govt. to industry?
- claims, Orsavers
move money tofrom
borrowers
sellers to buyers?
- relations and
- mechanisms in an economy,
… linking sources & application of funds
 FINANCIAL SYSTEM
A set of complex & closely-connected or intermixed
i t a
-institutions,
? I s
-agents, o n d
Wh
o si g
Fin
Syst f a b
-practices, ns R em in o
e 1pntio s a s
-markets, e m ot e i m ?
e t of c
r e d c l a India laims
i n
- claims, a t i s ? Ot .
h
Wand
- relations
her
note
s?
- mechanisms in an economy,
… linking sources & application of funds
 FINANCIAL SYSTEM
o rs …
A set of complex & closely-connected or intermixed
u l a t D ?
-institutions, r e g B A R
i e s , N A h e
-agents, d i a r I ? m t
m e M F y s te
-practices, n te r I ? A i a l s
ts : i R B a n c
-markets,e n
g IRD A ? fi n
A t h e ?
- claims, I?
B c e s o s t
S E l u e n m
- relations and
i n f
h o
W
- mechanisms in an economy,
… linking sources & application of funds
1. FINANCIAL MARKETS
• It is the coming together of borrowers (buyers/issuers) and
lenders (sellers/investors) of capital & credit (goods/services)
• Types of Markets:
A) Organized Vs. Unorganized
B) Medium to Long term funds Vs. Short term funds
- Capital Market Vs. Money Market
- Bonds (Govt. or pvt.), equity Vs. TB, CP, CD
C) Primary Vs. Secondary
D) Debt Vs. Equity Vs. Foreign Exchange Vs. Commodities
BACK 2 BASICS: PERFECT
COMPETITION
• Free entry & exit
exit
• Complete, free
free information
information
• Large number of small buyers & sellers
• Free mobility
mobility of
of factors
factorsof
ofproduction
production
• Zero transaction
transaction costs
costs
• Products are homogeneous
Why do financial markets exist?
MOCK MCQ#1:
GoI has announced 6 different measures for MSME
since the lockdown. These measures seek to improve
which efficiency?
Rs 3 lakh crore credit guarantee, wherein 20% of the outstanding as on the cut-off date of February 28 will be
guaranteed by the government, and banks will be able to lend without hassle.
ALLOCATION EFFICIENCY: 120mn jobs,
95% of enterprises, 10+% gr. Rt.
• Allocation efficiency
• Operational efficiency
• Fundamental valuation efficiency
• Information arbitrage efficiency
Which parts of the syllabus are exciting for
MCQs?
• Meaning of key concepts
• Lists
- types, features, advantages, disadvantages
• Comparing – contrasting
FINANCIAL MARKETS
• Money Market: The money market is a wholesale debt market for low-risk,
highly-liquid, short-term instrument. Funds are available in this market for
periods ranging from a single day up to a year. This market is dominated mostly
by government, banks and financial institutions.
• Capital Market: The capital market is designed to finance the long-term
investments. The transactions taking place in this market will be for periods
over a year. Securities are issued by Govt. & corporations.
• Forex Market:
Who are Thethe
Forexdominant
market dealsplayers
with the multicurrency requirements,
in Money market?
which are met by the exchange of currencies. Depending on the exchange rate
that is Capital
applicable,Markets?
the transfer of funds takes place in this market. This is one of
the most developed and integrated market across the globe. Banks & FIs
dominate.
• Credit Market: Credit market is a place where banks, FIs and NBFCs purvey
short, medium and long-term loans to corporate and individuals.
2. FINANCIAL INSTRUMENTS
• Deposits – demand deposits & time deposits
• Loans/borrowings
2 parties to a transaction,
• Repo, Reverse Repo
asset? Liability?
• CP, TB, CD Eg: You and your bank
• Bonds & debentures Deposits?
• Shares Loan?
• Derivatives
ALERT!
• Please don’t mug up anything!
• That’s the beauty…..everything is laid out before you on the
screen…..what a relief! You don’t have to write Bollywood scripts!
• STRATEGY FOR EXAM PREP: Just read key topics…
- Calmly
- Reflect on the meaning
SHORT TERM FINANCIAL
INSTRUMENTS
• Commercial Paper
• Certificate of Deposit
• Treasury Bill
• Call Money/Notice Money/Term money
CALL MONEY / NOTICE MONEY
• Call/Notice Money: Call money is the money borrowed or lent on
demand for a very short period.
• When money is borrowed or lent for a day, it is known as Call
(Overnight) Money. Intervening holidays and/or Sunday are excluded
for this purpose. Thus money, borrowed on a day and repaid on the
next working day, (irrespective of the number of intervening holidays)
is "Call Money".
• When money is borrowed or lent for more than a day and up to 14
days, it is "Notice Money." No collateral security is required to cover
these transactions.
CERTIFICATES OF DEPOSIT (CDs)
• Certificates of Deposits (CDs): Certificates of Deposit is a negotiable
money market instrument and issued in dematerialized form or as a
Usance Promissory Note, for funds deposited at a bank or other
eligible financial institution for a specified time period.
• CDs can be issued by: (a) scheduled commercial banks excluding
Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (b)
select All India Financial Institutions that have been permitted by RBI
to raise short term resources
COMMERCIAL PAPER (CP)
• Commercial Papers (CPs): CP is a note in evidence of the debt obligation of the
issuer. On issuing commercial paper the debt obligation is transformed into an
instrument.
• CP is thus an unsecured promissory note privately placed with investors at a
discount rate to face value determined by market forces. CP is freely negotiable
by endorsement and delivery.
• All eligible participants shall obtain the credit rating for issuance of Commercial
Paper
• Maturity: CP can be issued for maturities between a minimum of 7 days and a
maximum up to one year from the date of issue. The maturity date of the CP
should not go beyond the date up to which the credit rating of the issuer is valid.
• Denominations: CP can be issued in denominations of 5 lakhs or multiples thereof.
Amount invested by a single investor should not be less than 5 lakhs (face value).
SHORT TERM FINANCIAL
INSTRUMENTS
SB(SCH
CALL MONEY I COMM BNKS, DEV. FI, COOP. BNKS. PRIMARY DEALERS)
p i sb
• Overnight,eno collateral
rio orro
d o COMM
NOTICE MONEY (SCH f 45 winBNKS,
gR DEV. FI, COOP. BNKS. PRIMARY DEALERS)
• 2 - 14 days, no collateral day s.1
s, 0 ,0
TERM MONEY (SCH COMM BNKS,w
hic 00 crBNKS. PRIMARY DEALERS)
DEV. FI, COOP.
• 15+ days, no collateral h in ore
str s fr
TREASURY BILL (Govt. IOU) um om
entthan 91 days:
• 91/182/364 days i.e. less than one year; auction; zero-coupon (less RB Cash Mgt. Bill), min: 25,000Rs.
is i I fo
CERTIFICATE OF DEPOSIT (SCH COMM BNKS, FI) t? ra
• 14/91/182/364 days i.e. less than one year; negotiable; issued against deposited funds, min. Rs. 1L

COMMERCIAL PAPER (CORPORATIONS, FI, Primary Dealers)

• 7 days to 1 year, min Rs. 5L, unsecured, compulsory Credit Rating
SHORT TERM FINANCIAL
INSTRUMENTS
W(SCH
CALL MONEY h COMM BNKS, DEV. FI, COOP. BNKS. PRIMARY DEALERS)
s e nt
ysnot collateral
e m he s e
• Overnight,

NOTICE MONEY (SCH , wCOMMtrBNKS,a DEV. FI, COOP. BNKS. PRIMARY DEALERS)
h
• 2 - 14 days, no collateral ich
ns a
a g c ti o
C L EACOMM BNKS,nDEV. e n s a BNKS. PRIMARY DEALERS)
TERM MONEY (SCH
R c y FI, COOP.
• 15+ days, no collateral IN is t re ta
GC her kin
TREASURY BILL (Govt. IOU) O RP e fo g p
O r g
RA zero-coupon (lessuthan
• 91/182/364 days i.e. less than one year; auction;
lace Cash Mgt. Bill)
T IO ara in
91 days:

CERTIFICATE OF DEPOSIT (SCH COMM BNKS, FI) NO nte ban

F e d k i
• 14/91/182/364 days i.e. less than one year; negotiable; issued Iagainst
ND deposited sett ng
funds

COMMERCIAL PAPER (CORPORATIONS, FI, Primary Dealers)

I A l em
ent
• 7 days to 1 year, min Rs. 5L, unsecured, compulsory Credit Rating ?
PRIMARY DEALERS 
PRIMARY DEALERS   = have the license to purchase
and sell government securities. 

PRIMARY DEALERS: Duetsche Secs (India), BoA Treasury Ops, IDBI Gilts,
Nomura Fixed Income Secs, Morgan Stanley India PD, …..ICICI, Kotak, SBI,
Citibank….  
MOCK MCQ #2:
Which of the following statements is not true of
NSE?
NSE became world’s largest derivatives
mkt. 2019 with 6bn contracts
• It is located on Dalal street
• Its fully automated screen based trading system is
called NEAT
• It is India’s largest stock market
• It was established in 1992
MOCK MCQ #3:
Which of the following statements best describes
RBI?
Narsimham Committee: 1991, 1998

• It is was established on the recommendations of Commission?

What about Finance Narsimham
Committee & Finance Commission.
• It controls India’s financial system through quantitative control
measures of CRR, SLR, Margin Requirements, etc.
• It is the lender of last resort to GoI
• It was established on 1st April 1935
MOCK MCQ #4:
Why does GoI dominate in bond market?

• Because it is lender of last resort

• Because its instruments are gilt-edged
• Because it will survive in the long run
• Because it can modify the terms of contract
MOCK MCQ #5:
Spot the incorrect pair

• REPO 4% & REVERSE REPO 3.35%

• MSF RT 4.25% & BANK RATE 4.25%
• REPO 4% & REVERSE REPO 4%
• CRR 3% & SLR 18%
MOCK MCQ #6:
Which of the following is not a G-Sec?
WMA is a mechanism, not a security

• Cash Management bills

• Treasury Bills
• Govt. Bonds
• Ways & Means Advances
THANK YOU FOR YOUR PATIENCE &
COOPERATION!