Financial System: A financial system is concerned about money, credit and finance.

These three terms are closely related yet are not synonymous & are different from each other in certain respects. Financial system consists of financial institutions, financial market, financial instruments and financial services.

Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products
Flow of funds (savings)
Seekers of funds (Mainly business firms and government) Suppliers of funds (Mainly households)

Flow of financial services Incomes , and financial claims

Financial System
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Organized Indian Financial System

Financial Services

Financial Instruments

Financial Markets

Financial Intermediaries

Forex Market

Capital Market

Money Market

Credit Market

Primary Market Secondary Market

Money Market Instrument

Capital Market Instrument

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Financial Markets
A Financial Market can be defined as the market in which financial assets are created and/or transferred. As against a real transaction that involves exchange of money for physical goods or services, a financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend. It has two major parts-one is money market another is capital market. Thus A financial market is simply a market for transacting in financial assets. If you buy or sell financial assets, you will participate in financial markets in some way or the other.

Cont.
The financial markets exist in an economy because the savings of various individuals, corporations and governments during a period of time are available for investment in certain assets. By real assets we mean such thing as houses buildings equipment inventories and durable goods.

Classification of financial markets:

There are different ways of classifying financial markets. Most popular way is to classify financial markets by the maturity of claims.

Money Market Capital Market

The market for short term whole sale financial assets is referred to as the money market and the market for long term financial claims is called the capital market. Traditionally the cut off between short term and long term financial has been one year. Since short term financial claims are almost invariably debt claims, the money market is the market for short term debt instruments. The capital market is the market for long term debt instruments and equity instruments.

Role of Capital Markets

Mobilization of Savings & acceleration of Capital Formation Promotion of Industrial Growth Raising of long term Capital Ready & Continuous Markets Proper Channelisation of Funds Provision of a variety of Services

Indian Capital Market

Market

Instruments

Intermediaries Regulator
SEBI

Primary

Secondary

Brokers Investment Bankers Stock Exchanges Underwriters Hybrid Debt

Equity

Players

CRA

Corporate Intermediaries

Individual

Banks/FI

FDI /FII
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Capital Market Instruments

Equity

Hybrid

Debt

Equity Shares

Preference Shares

ADR / GDR

Debentures Zero coupon bonds

Deep Discount Bonds

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