INDIAN FINANCIAL SYSTEM

Role of Financial Markets and Services

Omprakash kajipet
kakatiya university - warangal

Session Objectives
At the end of this session you should be able to.
understand the linkage between economic development
and financial system
identify the objectives of sound financial system
understand the meaning and functions of financial
system
know the constituent elements of the financial system
understand

the

role

and

markets in financial system

importance

of

financial

Economic development of any nation depends

to a great extent on
-Rate of investment or capital formation
-Capital formation in turn depends on the
savings of the people

WHAT IS FINANCIAL SYSTEM?

Financial system is a set of complex and

closely intermixed financial institutions,
markets,
instruments,
services,
practices, and procedures with a basic
goal of accelerating the rate of economic
development, and thereby improve the
general standards of living and increase
the social welfare of the people.

FS includes different markets (FMs), the institutions

(FIs), instruments (FAs), services (FSs) and mechanisms,
which influence the generation of savings, investment,
and capital formation and economic growth.
The financial system is defined as the purpose of
financial markets to allocate savings efficiently in an
economy to ultimate users either for investment in
real assets, or for consumption

Financial System of any country

consists of financial markets, financial
intermediation
and
financial
instruments or financial products.
Flow of funds
(savings)

Seekers of funds
(Mainly business firms
Flow of financial services
and government)

Suppliers of funds
(Mainly households)

Incomes , and financial

claims

Financial System

Indian Financial System

Organized
Regulators

Non- Organized
Money lenders

Financial Institutions

Local bankers

Financial Markets

Traders

Financial services

Landlords
Pawn brokers
Chit Funds

Evolution of Financial System

Barter
Money Lender
Nidhis/Chit Funds
Indigenous Banking
Cooperative Movement
Societies

Banks

Joint-Stock Banks

Consolidation
Commercial Banks
Nationalization
Investment Banks
Development Financial Institutions
Investment/Insurance Companies
Stock Exchanges
Market Operations
Specialized Financial Institutions
Merchant Banking
Universal Banking

Interrelation-Financial system & Economy

Financial System
Households Foreign Sectors

Savers Lenders

Investors
Borrowers

Corporate Sector
Govt.Sector

Economy

Un-organized
Sector

Organized Indian Financial System

Regulators

Financial
Markets

Financial Instruments

Forex
Market

Capital
Market

Money
Market

Primary Market
Secondary Market
Money Market
Instruments

Capital Market
Instruments

Financial
Intermediaries

Credit
Market

OBJECTIVES OF FINANCIAL SYSTEM

To facilitate transfer of funds from savers/surplus
units to investors/users/deficit-units
To increase the volume and rate of savings
To act as bridge between savers and
investors
To allocate resources among different investment
channels
To encourage savings and investment
To accelerate rate of economic development

FUNCTIONS OF FINANCIAL SYSTEM

EFFICIENT TRANSFORMATION OF FUNDS

CREATING INNOVATIVE SCHEMES FOR

SAVINGS AND INVESTEMENT

GLOBALISATION

DIVERSIFICATION OF INVESTMENTS

STRUCTURE OF FINANCIAL SYSTEM

The structure of financial system of any country
consists of:
Organised and unorganised financial markets
Specialised and non-specialised financial
institutions
Financial instruments and
Financial services

N
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WH

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FINANCIAL MARKETS
Financial markets deal in financial instruments or
securities and financial services.
Financial
markets
are
the
centers
or
arrangements that provide facilities for buying
and selling of financial claims and services.

FINANCIAL MARKETS
A

financial market is a market for creation

and exchange of financial assets often referred

to as securities such as equities, debt instruments
etc.
The participants of the financial markets on
demand and supply side are: financial institutions,
agents, brokers, dealers, borrowers, lenders,
savers and other connecting agencies.

CHARACTERISTICS OF EFFICIENT
FINANCIAL MARKETS
ABSENCE OF INFORMATION-BASED GAINS
CORRECT EVALUATION OF ASSETS
MAXIMISATION OF CONVENIENCE
MINIMISATION OF TRANSACTION COSTS
MAXIMISATION OF MARGINAL EFFICIENCY
OF CAPITAL

CLASSIFICATION OF.

FINANCIAL MARKETS
Nature of Claim:

Debt Market

Maturity of Claim:

Money Market

Equity Market
Capital Market

Primary Market
Secondary Market

Seasoning of Claim:

Cash or Spot Market

Forward or Futures Market

Timing of Delivery:

Exchange traded Market

Over-the-counter Market

Organizational Structure:

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TIME FOR DISCUSSION