ifs
TRANSCRIPT
Objective of this PPTTo understand the working and organisation of
Indian financial system
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Introduction to Financial System Financial system is a mechanism that works for
investors and people who want finance.
It is an interaction of various intermediaries, market instruments, policy makers and various regulations to aid the flow of saving from savers to investors and checking various abuses faced in the proper functioning of the system.
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Financial System
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Indian Financial SystemPre- planned period
Close character of entrepreneurshipAbsence of financial IntermediariesLow industrial growth rate
Mixed economy based planned periodPublic/ Govt. ownership of financial institutions
RBI, Nationalised banks, Special purpose financial institutions
Investors’ protection Companies act, Securities contract act
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Money Market MeaningProf Sayers- money market is that area of market that
deals in short term capital.Market for funds and assets that are close substitutes
for moneyFocuses on providing means by which government
and institutions are able to rapidly adjust their actual liquidity position.
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Instruments of Money MarketCall money instruments- one day loanTreasury bills- meeting short term deficits of govtCommercial papers- short term instruments
issued by corporate- introduced in Jan 1990Certificate of deposits- issues by banks to the
depositor, introduced in June 989- lowest period 15 days for 5 lakhs
Repo transactions- maturity of 1 day to six months
Money market mutual funds-introduced by RBI in April 1992 and regulated by SEBI
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Capital Market MeaningMarket where long term and medium term financial
instruments are traded.This market consists of two parts:
Primary market By prospectus Offer for sale Private placement Right issue Right issue Employees stock option Sweat equity
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Secondary Market Located at a fixed place Securities of listed companies are traded Purpose is to transfer ownership
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Instruments of Capital MarketEquity sharesPreference sharesDebentures/ bondsInnovative debt instruments
Convertible debentures/bondsWarrantsZero interest bondSecured premium notesFloating rate bond
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Instruments of Capital Market cont..Forward contract
Not standardized, regulated through trading, margin is required
FuturesStandardized , traded at over the counter market,
involves counter party risk
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Financial IntermediariesBanking
•RBI•Commercial banks•Co-operative banks•Post office savings banks
Non-banking
•LIC•GIC•UTI•Housing development finance companies-HDFC, HUDCO
Developmental
•ICICI, IDBI,IFCI •NABARDSIDBI•Tourism finance corporation•SFCs
Regulatory Institutions
•SEBI•RBI•IRDA- insurance regulatory and development authority•Board of regulatory and development authority-BIFR
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Equilibrium in Financial Markets
Interest rate
Amount of loan funds
Borrowings
Lending
If the interest rate rises lenders are ready to provide more fundsBorrowers are ready to borrow when interest rate falls.
Amount of securities
Price
Investors are willing to buy more securities as price falls, and sell more when price rises.
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Supply
Demand