Financial Services

• The financial systems:-

• Economic development ---FS
• FS—inputs to production of goods and
services-standard of living
• FS-financial markets and financial institutions
• Assets in the FS—money and monetary assets
• FS—mobilise savings in the form of money
and monetary assets
• FS- facilitates –flow of funds to productive
activities
• Functions of FS—
• 1. Provision of liquidity: there should not be
any shortage of money for productive
ventures ( role of RBI, commercial banks)
• 2.Mobilisatin of savings
• 3Size of transformation function:
• Collecting savings from millions of small
investors and granting perceptible size of
credit ( savings/deposits-loans)
• 4 Maturity transformation function: deposit
maturity, loan maturity and promote
economic activities of a country
• 5Risk transformation function:- small investors
are risk averse– so hesitate to invest directly –
financial intermediaries collect the savings
distribute –( mutual fund, SIP …)
• Financial concepts ;
• i) Financial assets
• Ii) financial intermediaries
• Iii) Financial markets
• Iv) Financial rates of return
• V) financial instruments
i) Financial assets:- A FA is one which is used for
production or consumption or further creation
of assets ( eg A, buys equity shares and these
shares are financial assets since they earn
income in future)
• Financial asset vs physical asset
• Classification of FA
• i) Marketable assets
• Ii) Non marketable assets
• i) MA are those which can be easily
transferred from one person to another, eg
shares , Govt securiites Bonds etc
• Ii) NonMA can not be transferred easily , eg
Bank deposits, PF, Pension fund, NSC,
Insurance policies etc
• Cash asset : coins, currency notes, creating money
by means of credit
• Debt asset –Debentures, loans, working capital
advance etc…
• Stock asset : for raising the fixed assets ( equity,
preference-)
Financial Intermediaries:-
-which intermediate an facilitate financial transactions
i) Capital market intermediaries—long term funds to
individuals and corporate customers ( Financial
Institutions, LIC..)
• Ii) Money market intermediaries :- short term
funds (commercial banks, cooperative banks )
Financial Markets:
There is no specific place or location to indicate a
financial market,
Financial transaction are themselves very pervasive
throughout the economic system, eg-issue of
equ shares granting loans, deposits into bank
sale and purchase of shares and debentures
FM facilitate buying and selling of financial assets
• Classification of financial markets:-
• --Unorganized markets- money lending,
indigenous bankers, traders etc, private
finance companies,chitfunds…whose activities
are not controlled by RBI
• Organized markets—there are standardized
rules and regulation
• Organised markets :-
i) Capital market ii)Money market
• Capital market:-
i) Industrial securities market, ii) govt.
securities market and iii) Long term loans
market
ii) Industrial securities market:- Equity shares
ii)Preference shares iii) debentures
Further subdivided into ---i) Primary market or
New issue market and ii) Secondary market
or Stock exchange
• Primary market---market for new issues.
Company may raise capital in a primary
market ---Public issue, Right issue and Private
placement ( is a way of selling securities
privately to a small group of investors)
• Secondary market:-secondary sale of
securities. Generally such securities are
quoted in stock exchange and it provides a
continuous and regular market for buying and
selling of securties.
• Ii) Govt securities Market It is also called gilt
edged securities market. The Govt securities are
in many forms---stock certificates or inscribed
stock, promissory notes, bearer bonds which
can be discounted
• Separate Trading of Reregistered Interest and
Principal of securities ( STRIPS)—Stripping is
nothing but the process of separating a
standard coupon leaving bond into its
constituent interest and principal components.
• Long term loans market—
• i) Term loans market—
• Ii) Mortgages market ---supply mortgage loan
mainly to individual customers against the
security of immovable property like real
estate.
• Iii)Financial guarantees market—A guarantee
market is a centre where finance is provided
against the guarantee of a reputed person in
the financial circle.