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Introduction For the rapid growth of any country. Pre – 1951 ORGANISATION Per capita output is low & constant Closed circle character of industrial org. In corporate management Finance & credit facilities become strengthen Nationalization ( RBI. 6. 4. Semi organized & narrow industrial securities market Absence of institutions participation in long term financing Restricted access to outside savings Financial system was not responsive to opportunities 1. 3. 5. 4. 2. LIC. an efficient and developed financial system is required. 3. 5. 1951 TO MID – EIGHTIES Public/Govt ownership of financial ownership of financial institutions Fortification of the institutional structure Protection to investors Participation of financial inst. 6. 2. GIC) AFTER EIGHTIES . The evolution of the Indian financial system falls in three distinct phases: 1.
IRDA. forex market. insurance companies.) • Financial institutions (banks. etc. bonds.) Regulation is another aspect of the modern financial system (RBI. FMC) . etc. mutual funds. deposits. equities. SEBI.) • Financial markets (money market. capital market. etc.AFTER EIGHTIES An institutional framework existing in a country to enable financial transactions Three main parts • Financial assets (loans.
governments too raise funds through issuing of bonds. Treasury bills.Financial assets/instruments Enable channelising funds from surplus units to deficit units There are instruments for savers such as deposits. etc. KVP. are available to savers who wish to lend money to the government . mutual fund units. etc. overdrafts. etc. Instruments like PPF. etc. There are instruments for borrowers such as loans. equities. Like businesses.
Financial Institutions Includes which institutions and mechanisms • Affect generation of savings by the Institutions are banks. insurance companies. industrial and trading companies. mutual fundspromote/mobilize savings Individual investors.borrowers community • Mobilization of savings • Effective distribution of savings .
) Capital Market. These assets represent 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.for short-term funds (less than a year) • Organised (Banks) • Unorganised (money lenders. etc.Financial Markets Defined as the market in which financial assets are created or transferred. chit funds. Money Market.for long-term funds • Primary Issues Market • Stock Market • Bond Market .
Main Function To channelize savings into short term productive investments like working capital in Money Market Instruments Call money market Treasury bills market Markets for commercial paper Certificate of deposits Bills of Exchange Money market mutual funds Promissory Note .
Money Market Instruments Certificates of Deposit Commercial Paper Inter-bank participation certificates Inter-bank term money Treasury Bills Bill rediscounting Call/notice/term money CBLO Market Repo .
MMMF Open Ended Close Ended .Invest primarily in money market instruments of very high quality. RBI and public financial institution can set it either directly or through its existing subsidiaries.
Purpose for these resources Expansion Capacity Expansion Investments Mergers and Acquisitions Deals in long term instruments and sources of funds .Provided resources needed by medium and large scale industries.
Main Activity Functioning as an institutional mechanism to channelize funds from those who save to those who needed for productive purpose. Provides opportunities to various class of individuals and entities. .
the company. Securities issued a)Preference Shares b)Equity Shares c)Debentures Securities like Preference Shares and Debentures cannot be traded in the secondary market. . b)Retail investors c)Employees d)Financial Institutions e)Mutual Fund Houses f)Banks One time activity by the company. Helps in mobilising the funds for the investors in the short run.Primary Markets Secondary Markets When companies need financial resources The place where such securities are for its expansion. Equity shares is issued by the under Equity shares are tradable through a writers and merchant bankers on behalf ofprivate broker or a brokerage house. secondary market. People who apply for these securities are: Securities that are traded are traded by a)High networth individual the retail investors. they borrow money fromtraded by these investors is known as the investors through issue of securities.
Functions of current financial system Saving Function Liquidity Function Payment Function Risk Function Policy Function .