UNIT-1
OVERVIEW OF INDIAN FINANCIAL SYSTEM
Meaning of Indian financial system
The services that are provided to a person by the various Financial
Institutions including banks, insurance companies, pensions, funds, etc.
constitute the financial system
A financial system is the set of global, regional, or firm-specific
institutions and practices used to facilitate the exchange of funds. Financial
systems can be organized using market principles, central planning, or a hybrid
of both.
FEATURES OF INDIAN FINANCIAL SYSTEM
• It plays a vital role in economic development of a country.
• It encourages both savings and investment.
• It links savers and investors.
• It helps in capital formation.
• It helps in allocation of risk.
• It facilitates expansion of financial markets.
COMPONENTS/ CONSTITUENTS OF INDIAN FINANCIAL SYSTEM
The following are the four major components that comprise the Indian
Financial System:
1. Financial Institutions
2. Financial Markets
3. Financial Instruments/ Assets/ Securities
4. Financial Services
FINANCIAL INSTITUTIONS
Financial institutions are the intermediaries who facilitate smooth
functioning of the financial system by making investors and borrowers meet.
They mobilize savings of the surplus units and allocate them in productive
activities promising a better rate of return. Financial institutions also provide
services to entities (individual, business, government) seeking advice on various
issue ranging from restructuring to diversification plans. They provide whole
range of services to the entities who want to raise funds from the markets or
elsewhere.
Financial institutions are entities that help individuals and businesses
fulfil their monetary or financial requirements, either by depositing
money, investing it, or managing it. Some of the institutions labelled
under this category include – banks, investment firms, trusts,
brokerage ventures,
Financial Markets
Financial Markets include any place or system that provides buyers and
sellers the means to trade financial instruments, including bonds, equities, the
various international currencies, and derivatives. Financial markets facilitate the
interaction between those who need capital with those who have capital to
invest.
Financial markets refer to the institutional arrangements for dealing in
financial assets and credit instruments of different types such as currency,
cheques, bank deposits, bills, bonds etc.
Financial Instruments/ Assets/ Securities
Financial instruments refer to those documents which represents financial
claims on assets. As discussed earlier, financial asset refers to a claim to a claim
to the repayment of a certain sum of money at the end of a specified period
together with interest or dividend. Examples: Bill of exchange, Promissory
Note, Treasury Bill.
A financial instrument is a real or virtual document representing a legal
agreement involving any kind of monetary value. Financial instruments may be
divided into two types: cash instruments and derivative instruments.
Financial Services
Financial services are the economic services provided by the finance
industry, which encompasses a broad range of businesses that manage money,
Financial services are the economic services provided by the finance
industry, which encompasses a broad range of businesses that manage money,
including credit unions, banks, credit-card companies, insurance companies,
accountancy companies, consumer-finance companies, stock brokerages,
investment funds, individual
