trade finance financial markets & role of banks in financial sector
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Financial SystemTRANSCRIPT
Trade FinanceFinancial Markets & Role of Banks in Financial Sector
Agenda
In this session, you will learn about:
• Financial System
• Constituents of Financial System
• Role of Commercial banks in economic development
Financial System
What is a Financial System?
It is an organized and regulated structure where exchange of funds take place between the lenders and borrowers.
What is a financial system?Q
Components of a Financial System
A Financial System is a system that brings together Financial Participants, Markets, Products, and Services.
PARTICIPANTS MARKETS PRODUCTS SERVICES
FINANCIAL SYSTEM
Goal of Financial System
GOALThe primary goal of a financial system is
accelerated growth of an economy.
Objectives of Financial System
Saving Mobilization National GrowthInvestments
Prices in a Financial Market
MARKET DEMAND
MARKET SUPPLY
Prices
External Socio-Political Factors
Functions of Financial System
Functions of a Financial System
Facilitate the flow of funds to finance
investments
Play the role of intermediaries to
determine the flow of funds
Monitor and regulate the participants in the
financial system
How Financial System Works?
Borrowers Spenders
HouseholdsBusiness firmsGovernments
Foreigners
Financial markets
Indirect Finance
Direct Finance
Funds Funds
Funds
Financial Intermediaries
LendersSavers
HouseholdsBusiness
GovernmentsForeigners
Funds Funds
Financial System
Structure of the Modern Financial System
Financial Market
Financial Instruments
Financial Participants
Financial Regulator
Financial Services
Participants of the Financial System
ONES WITH SURPLUS FUNDS
ONES WITH DEFICIT FUNDS
Invest in assets to gain more
profit
Sell assets to get
financing
Sell SideBuy Side
Financial System
Financial Market
A market where financial instruments are traded in order to raise capital.
What is Financial Market?
A market where investors and borrowers can trade in financial securities, commodities and other financial instruments at prices that reflect the market demand and supply.
Investor
Shares
Cash
FINANCIAL MARKET
Company
Financial Market
Long Term
Capital
Medium Term
Capital
Short Term
Capital
FinancialMarket
The market for such securities could be short term, medium term or long term capital.
Role of Facilitator
Functions of Financial Market
Financial markets have five major economic functions:
Price Discovery Liquidity Reduction of Transaction Costs
Regulating Intermediaries
Settlement of Transactions
Types of Financial Markets
Quote Driven Market
Order Driven Market
Capital Market
Money Market
Primary Market
Secondary Market
Instruments Offered In Financial Markets
Financial Instruments
Bonds Derivatives
Stocks Foreign exchange Commodities
18
Instruments Offered In Financial Markets
Financial Instruments
Government Securities Debentures
Money Market Instruments
Insurance And Pension
19
Financial Instruments
Stocks Includes examples such as equity shares
Bonds Fixed Income Instruments which provides a coupon as
income
Insurance And Pension
Protection for short term and long term investments
Government Securities
Securities issued by the Government for various purposes (Municipal bonds, T-Bills)
Debentures : Bonds which are unsecured are known as Debentures
Financial Instruments
Foreign Exchange
Foreign Exchange: Exchange of one currency for another using an exchange rate
Derivatives Instruments which derive their value from an underlyer.
Money Market
Instruments
Short term instruments which have maturities less than a year. E.g. T-Bills Repo, Certificate of Deposit, Commercial Papers
Commodities Can be traded directly or using derivative products.
Market Making
Asset Management
Specialized Financial Solutions
Mergers & Acquisition
Research & Advise
Sales & Trading
Financial Services
Financial Services
Underwriting
Financial Services
Mergers and Acquisitions
Equity valuation of a company, research on the sector, target companies, when to pay, how much to pay, how to pay etc
Research and Advice
Provide specialized market research reports on the trends and views of the market (not just equity, but global underlyers)
Underwriting Provide a guarantee that a company will be able to raise the
capital from the public
Financial Services
Sales & Trading
Create structured products per client requirements
Market Making
Publish prices in the market to entice the other participants to trade against them, which in turn increases liquidity
Asset Management
Manage the assets of global clients and allow them to trade and invest in all the large financial centres of the world
Importance of Financial System
FINANCIAL MARKETS 2010
Vital to the functioning of the industry as the instruments help raise long term capital.
$ 1643 Trillion
Role of Commercial banks in Economic Development
Capital Formation
Capital Formation is the process of building capital stock of a country by Investing in productive plants and equipment's. In other words capital formation is
increasing of capital assets by efficient use of existing resources of the country.
Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income. Increasing an economy's capital stock also increases its capacity for production, which means an economy can produce more. Producing more goods and services can lead to an increase in national income levels.
The banks are, therefore, not only the store houses of the country’s wealth, but also provide financial resources necessary for economic development.
Banks are swiftly able to mobilise the funds from Surplus to Deficit creating value and in the process increasing capital
Promotion of Trade and Industry
With the growth of commercial banking, there is vast expansion in trade and industry.
The use of bank draft, check, bill of exchange, credit cards and letters of credit etc. has revolutionized both national and international trade.
Acting as lenders, the banks offer start-up loans and financing for capital equipment purchases.
Influencing Economic Activity
The banks can also influence the economic activity of the country through its influence on:
a. Availability of creditb. The rate of interest
If the commercial banks are able to increase the amount of money in circulation through credit creation or by lowering the rate of interest, it directly affects economic development.
Development banks set up as a term lending institution not only provide funds but also provide advisory, promotional and entrepreneurial services.
Development of Agriculture
A large number of formal institutional agencies like Co-operative banks, Regional Rural Banks (RRB), Scheduled Commercial Banks, Non Banking Financial Institutions (NBFI) and Self help groups (SHG’s) etc. are involved in meeting short term and long term needs of the farmers.
Several others initiatives have been taken to strengthen the institutional mechanism of rural credit.
The provision of credit to agriculture sector has greatly helped in raising agriculture productivity and income of the farmers.
Monetisation by Support to Rural Areas
An underdeveloped economy is characterized by the existence of a large non-monetized sector , particularly , in the backward and inaccessible areas of the country . The existence of this non monetized sector is a hindrance in the economic development of the country .
The banks, by opening branches in rural and backward areas , can promote the process of monetisation in the economy
Implementation of Monetary Policy
Monetary policy refers to actions taken by central banks to affect monetary and financial conditions with the aim of achieving the broader macro-economic policy objectives of low inflation and sustainable economic growth.
The central bank of the country controls and regulates volume of credit through the active cooperation of the banking system in the country.
It helps in bringing price stability and promotes economic growth with in the shortest possible period of time.
Role of Commercial Banks in 21st Century
Role of Commercial Banks in 21st Century
The commercial banks are now not confined just to local banking.
They are fast changing into global banking i.e., understanding the global customer, using latest information technology, competing in the open market with high technology system, changing from domestic retail banking to investment banking etc.
The commercial bank are now considered the nerve system of all economic development in the country.
The advent of Direct Banking Channels and Virtual banking has made a huge difference with customers being able to transact at the click of a button.
Role of Commercial Banks in 21st Century
Today’s commercial banking is characterised by three basic characters:
Deposits, Credit cards, Insurance, Investments and Securities
Multiple Products
Call centres, Branch banking, online marketing, Channel partners etc.
Multiple channels of distribution
Consumer, Small and Medium scale, corporate banking, Personal banking, Preferred banking, NRI Services
Multiple customer
groups
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