FINANCIAL SYSTEM

SUBMITTED BY:GURPREET KAURMBA (FINANCE)

Meaning Definition Objectives Introduction Features Functions Role of FS Weaknesses of FS Constituents of FS Financial Regulators Conclusion

Contents…

The financial system is the system that allows the transfer of money between savers and

borrowers. A financial system can operate on a global, regional or firm specific level.

Meaning :

Definition

According to Robinson, the primary function of the financial system is

“to provide a link between savings and investment for the creation of new wealth and

to permit portfolio adjustment in the composition of the existing wealth.”

• Existence of a well organized financial system

• Promotes the well being and standard of living of the people of a country

• Money and monetary assets

• Mobilize the saving • Promotes investment

ObjectivesOf

Financial System

Introduction

A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit.

It is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities.

The financial system is concerned about -• Money,• Credit • Finance.

Continue….

Financial system provides an ideal linkage between depositors and investors, thus encouraging both savings and investments.

Financial system facilitates expansion of financial markets over space and time.

Financial system promotes efficient allocation of financial resources.

Financial system influences both the quality and the pace of economic development.

Features of Financial System

Functions of Financial System

Link between Savers and Investors

Helps in Project SelectionAllocation of Risk

Information AvailableReduce Cost of Transaction and

BorrowingPromotion of Liquidity

Role of Financial System

Role of Economic DevelopmentPromotional Role of the Financial System

Lack of Coordination between different Financial

Institutions.Monopolistic Market

Structures Dominance of Development

Banks in Industrial Financing.

Weakness of Financial System

Constituents of Financial System

1.Financial Institutions

2.Financial Markets

3.Financial Instruments

4.Financial Services

Financial System

Financial Services

Financial Markets

Financial Instruments

Financial Institutions

RegulatoryIntermediaries Non- Interme-diaries

OthersCapital Market

MoneyMarket

Primary Securities

Secondary Securities

Banking Non-Banking

Depositories, Credit rating, Leasing, Hire-Purchase,etc.

Money Market

Capital Market

Organized Financial Markets

• Capital markets facilitate the transfer of capital (i.e. financial) assets from one owner to another.

• Provides liquidity.– Liquidity refers to how easily an asset

can be transferred without loss of value.

• A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.

Capital Market

Indian Capital Market

Market Instruments Intermediaries

Primary Secondary

Equity DebtHybrid

Regulator

•Brokers •Investment Bankers •Stock Exchanges•Underwriters

SEBI

Players

Corporate IntermediariesCRA Banks/FI FDI /FIIIndividual

• Market for short-term money and financial assets that are near substitutes for money.

• Short-Term means generally period upto one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost.

Money Market

• Treasury Bills

• Commercial Paper

• Certificate of Deposit

• Money Market Mutual Funds

• Repo Market

Money Market Instruments

Stock Exchange

A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities.

The two main stock exchanges in India are :- National Stock Exchange(NSE)- Bombay Stock exchange(BSE)

• Securities and Exchange Board of India (SEBI)• Reserve Bank of India(RBI)• Ministry of Finance

Financial Regulators

• Securities and Exchange Board of India (SEBI) was first established in the year 1988.

• Its a non-statutory body for regulating the securities market.

• It became an autonomous body in 1992.

Security Exchange Board of India (SEBI)

Reserve Bank of India (RBI)

Established on April 1, 1935 in accordance with the provisions of the RBI Act, 1934.

The Central Office of the Reserve Bank is in Mumbai.

It acts as the apex monetary authority of the country.

The Ministry of Finance is an important ministry within the Government of India. It concerns itself

with taxation, financial legislation, financial institutions, capital markets, etc.

Ministry of Finance

Conclusion

• Over the past five years, substantial progress has been made in the regulation of the financial system.

• There are still shortcomings in financial regulation to be eliminated.

• Ensuring that players in the financial system have to, and are able to, better bear losses and risks themselves in future will make the financial system more stable.

• Strengthening the principle of liability will help the financial system to serve the economy and society better.