 To understand Indian financial system.

 To understand components of financial system.

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Savings Investments
 What is Financial System?
 The financial system deals with financial transactions and
the exchange of money between savers, investors,
lenders and borrowers.

 Subset of economic system.

 Broadly classified into the formal and informal financial
system.

 Formal financial system consist of four segments:

Financial institutions, Financial markets, Financial instruments, and
Financial services.
 Risk & Return Risk & Return
Financial
Institutions

Funds
Funds

Lenders Borrowers
Funds

Funds
Financial
Markets
Risk & Return
Risk & Return
Functions of the Financial System

 Mobilize and allocate savings

 Monitor corporate performance
 Payment system
 Risk management
 Policy implementation
 Information provider
 Liquidity
 Lower transaction costs
 Commercial Private Bank
Bank
Public Bank
Co-operative
Bank
Banking
Financial Regional
Institutions Non- Rural Bank
Banking Foreign
Bank Secondary
Financial System

Financial Unorganised Capital Market

Markets Market Primary
organised
Money Market
Market
Financial
Instruments

Fund Based Leasing, Hire Purchase,

Financial Service Insurance, Bill discounting,
factoring etc.
Services
Fee Based
Service Issue Management, Credit
Rating, Stock Broking etc
 Financial Institutions

 Mobilize savings and facilitate the allocation of funds in an

efficient manner.
 Banking Institutions
 Non-banking Institutions
 Mutual fund
 Insurance
 Housing finance companies

 Post reforms, most of financial institutions now resort to

financial markets for raising funds.
 Financial Markets

 Provide facility for demands and requirements interact to

set a price.

 Money market & Capital market

 Primary market & Secondary market
 Financial Instruments

 A financial instrument is a claim against a person or an

institution for payment, at a future data, sum of money or
periodic payment in the form of interest or dividend.

 Primary securities
 Secondary securities
Financial Services

 Help with borrowing and funding,

 lending and investing
 Buying and selling securities
 Payments and settlements
 Managing risk
Nature of Financial Services

Intangibility Perishability

v Inseparability Advisory

v Heterogeneity Techno savvy

Relationship Between Financial
System and Economics
Market Frictions

Financial Markets and

Intermediaries

Financial Markets Functions

Channels to Growth

Economic Growth
Role of Financial System in Economic
Growth

Saving –
Investment
Growth of Government
Capital Securities
Market

Financial
System
Balance
Economic Trade
Growth Development

Foreign Capital
 Financial Convergence
 Universal banking: all services are made available to customers under
one roof.
 Difference in line of business have narrow down.

 Financial Engineering
 Designing new financial instruments and its structural solution.

 Financial Inclusion
 Use of financial services by population.
Digitalization

Improvement of
the product

Automation

Simplification of
communication
 Financial Analyst
 Corporate Finance Analyst
 Commercial Banker
 Investment Banker
 Credit Analyst
 Investment Banker
 Insurance Manager

Many
More !!