Indian Financial System Brief Explanation Meaning of Financial
Indian Financial System Brief Explanation
Meaning of Financial System �“Financial system is a set of institutional arrangements through which financial surpluses (or commands over real resources) in the economy are mobilised from surplus units and transferred to deficit spenders. The institutional arrangements include all conditions and mechanisms governing the production, distribution, exchange, and holding of financial assets or instruments of all kinds and the organisation as well as the manner of operation of financial markets and institutions of all descriptions. In nutshell financial assets, financial markets and financial institutions are the main components of financial system. ” ( S. B Gupta)
Financial Assets �Primary Securities: It is a claim against real sector units. Through this real sector units borrows to raise funds to finance their deficit spending. For example, bills, bonds, equities, debt, etc. �Secondary Securities: It is a financial claims issued by financial institutions against themselves to raise funds from the public. For example, bank deposits, life insurance policies, UTI units, IDBI bonds, etc.
Financial Institutions �Financial institutions are also known as financial intermediaries (FIs). The FIs mediate between ultimate lenders and ultimate borrowers.
Financial Markets �Financial markets deal in financial assets and instruments of various kinds such as currency, deposits, cheques, bills, and bonds, etc. �Financial markets- i) Money market, ii) Capital market
Money market (notional) markets Short-term credit Organised Unorganised Call money market Bill market Bank Loans Treasury Bills Commercial Bills Hundis Loans from Indigenous Bankers, Moneylenders and others
Capital Markets �Capital markets (long term funds) Organised Stock market Govt. Bonds Unorganised Loans from Banks and NBFIs Corporate Bonds Equities Loans from moneylenders and others
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