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The financial system or the financial sector of any country consist of (A)Specialised and non specialised financial institution. (B)Organised and unorganised financial market. (C)Financial instruments and services which facilitate transfer of funds.
The word system in terms of financial system, implies a set of complex and closely connected or interlinked institution, agent practice, market, transactions, claims, and liabilities in the economy. The financial system is concerned about money, credit and finance-the three term are intimately related yet are somewhat different from each other.
As men material and money are crucial input in production activities The human capital and physical capital can be brought and developed with money, therefore money, credit and finance are lifeblood of economic system
Financial System
Financial Services
Financial Institution Financial Markets Financial Instruments Organized + Unorganized Primary Primary + Secondary Banking + Non banking Short Term Money Market Medium Term
Secondary
Long Term
Capital Market
Economic development Saving & investment Or capital formation Deficit spending Economic Units
Financial System
Financial market are said to be perfect When (a)A large number of saver and investor operate in market. (b)The savers and investor are rational (c)All operators in the market are well informed and information is freely available to all of them. (d)There are no transaction cost (e)The financial asset are infinitely divisible (f)The participants in market have homogenous expectation (g)There are no taxes
Institutions
INTERMEDIARIES (1) 1 Banking
2 Non banking : Provident and pension fund
reserve bank of India Small saving organization (RBI) life insurance corporation commercial banks cooperative credit societies
(LIC)
general insurance corporation (GIC) unit trust of India (UTI) mutual funds
cooperative banks
finance corporation
Others:
Relief bonds
National development bonds Indra vikas patra Kisan vikas patra National saving scheme National saving certificate Deposit with banking institutions
Inter-corporate deposits Repo & reserve repos Stockinvest Global depositary receipts(GDRs) Foreign Boards Foreign currency convertible bonds(FCCBs) Eurobonds & Euronotes Floating rate Notes (FRNs)
Indexed bonds
2 Markets:
commercial bill market government securities market treasury bill market Industrial securities market (stock market) Foreign securities market Over the counter exchange(OTCE) Discount market Market for commercial paper and certificates of deposits
Mortgage market
Market for guarantees National stock exchange (NSE)
Derivatives market
Bonds market Equities market
Services (5)
Hire purchase and installment credit Deposit insurance and other insurance Financial and performance guarantees Acceptances Merchant banking Factoring
Credit rating
Credit information Technical and economic consultancy
Stock holding
Discount and Rediscounting Refinancing Underwriting
Funds transfer
Technology development
Leasing Credit cards