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    Unit I

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    pazilarsp
    The document discusses the key components of a country's financial system, including financial markets, institutions, and their role in connecting savers and investors to promote economic development. It describes the functions of the financial system in providing liquidity and mobilizing savings, as well as the different types of financial markets including money markets, which deal in short-term securities, and capital markets, which deal in long-term securities and help facilitate capital formation. The roles of various financial assets, institutions, and markets are examined in mobilizing savings and allocating funds to support industry and trade.

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    Unit I

    Uploaded by

    pazilarsp
    27 views36 pages
    The document discusses the key components of a country's financial system, including financial markets, institutions, and their role in connecting savers and investors to promote economic development. It describes the functions of the financial system in providing liquidity and mobilizing savings, as well as the different types of financial markets including money markets, which deal in short-term securities, and capital markets, which deal in long-term securities and help facilitate capital formation. The roles of various financial assets, institutions, and markets are examined in mobilizing savings and allocating funds to support industry and trade.

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    The document discusses the key components of a country's financial system, including financial markets, institutions, and their role in connecting savers and investors to promote economic development. It describes the functions of the financial system in providing liquidity and mobilizing savings, as well as the different types of financial markets including money markets, which deal in short-term securities, and capital markets, which deal in long-term securities and help facilitate capital formation. The roles of various financial assets, institutions, and markets are examined in mobilizing savings and allocating funds to support industry and trade.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    27 views36 pages

    Unit I

    Uploaded by

    pazilarsp
    The document discusses the key components of a country's financial system, including financial markets, institutions, and their role in connecting savers and investors to promote economic development. It describes the functions of the financial system in providing liquidity and mobilizing savings, as well as the different types of financial markets including money markets, which deal in short-term securities, and capital markets, which deal in long-term securities and help facilitate capital formation. The roles of various financial assets, institutions, and markets are examined in mobilizing savings and allocating funds to support industry and trade.

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    Financial System

     Ss- financial i/p- for the production of g&s


    – turn promote – std of living
     It is the combination of 2 concept-
    financial market & financial institutions
     It creates r/s bet savers & investors –
    promote faster economic development.

    1
    Functions of Financial system

    (i) Provision of liquidity


    * cash
    (ii) Mobilization of savings
    * play domestic activity

    2
    Financial Market
     Place were buying & selling – financial
    assets
     It relates – stock exchanges
     Financial assets- production & creation y-
    in future(eg- equity ss)

    3
    Financial assets
     Financial assets- production & creation y-
    in future(eg- equity ss)
    Classification of Financial Assets
    Financial Assets

    Marketable Assets Non- Marketable Assets


    * Transferred from one person to another- hindrance * Not easily transferred

    4
    Classification of Financial Market

    Classification of Financial Market

    Unorganized Organized

    Capital Market Money Market

    5
    Unorganized Market
     Lenders , bankers
     Collect deposit money from the public-
    lend to them
     Activity ^ RBI

    6
    Organized Market
     R& R- deals financial dealings
    Organized Market

    Capital Market •Money Market

    7
    Capital Market

    Deals with long term securities- maturity


    period
    Classification of Capital Market
    * Industrial Securities Market
    * Gvt Securities market
    * Long term loans market

    8
    Industrial Securities Market
     Deals – equity , Preference and
    Debentures

    9
    Importance of capital market
     Source – production
     Creates incentives to saving & facilitates
    capital formation
     Economic savings
     It gives quantitative & qualitative – direction
    – fund flows
     Important – source for technological use –
    industrial sectors
    Advantages of Capital Market
    (i) Capital
    • Expansion within existing markets or into new markets
    • Research and development
    • Mergers and acquisitions
    (ii) Profile
    • Improving your commercial position with existing and potential
    * customers and suppliers
    • Accessing the prestige and status that result from being on
     a leading global exchange

    (iii) Liquidity
    • Valuation, benchmarking, ranking and indices
    • Enhancing shareholder and brand value
    Disadvantages of capital market

     Prices for shares in capital markets can be


    very volatile.
     Different shares can have different levels
    of liquidity, i.e. demand from buyers and
    sellers.
    Money Market
     Deals- financial assets & securities-
    maturity period- 1
    Classification of Money Market

    Call Money Market Commercial Bills Market Treasury Bills Market

    Short – term Loan Market


    Composition /Classification of
    Money Market
    (i) Call Money Market
     Use- short term transaction- (1- 14 days)
     High liquidity
     Int rate – vary from day to day, hours to hours,
    center to center
    (ii) Commercial Bills Market
    * Bills of Exchanges
    * Crs sales
    * Buyer accepts bills- pay amt on later date
    * Seller get amt- by discounting bill
    Classification of Money Market

    (iii) Treasury Bills Market


     short term maturity (91- 182- 364 days)

     Or promissory note or financial bill –

    issued by gvt
    Classification Treasury Bills Market

    Ordinary treasury bills Ad hoc treasury bills


    Classification Treasury Bills Market

    (i) Ordinary treasury bills


    *issued to the public, banks& other financial
    institution
    * cental gvt – meet short term financial needs
    (ii) Ad hoc Treasury bills
     Issued in favour of RBI
     Pur or sales- RBI
    Classification of Money Market
    (iv) Short –Term Loan Market
    Given to corporate customers – meeting WCR
    Commercial banks- provide loan in the form – cash credit & OD
    OD -
    ►given to business people
    ►temporary
    ► given current a/c
    Cash credit-
    ► industrialists
    ►1 yr
    Given separate a/c
    Features of Money Market
     Short term funds
     Deals – financial assets- 1 maturity period
     Deals – easy liquidity
     No brokers – transactions
     Combination of markets
    Characteristics of Money Market
    (i) Highly Organised Banking System
    ►short term
    ►commercial banks
    (ii) Presence of a Central Bank
    ►Cash reserve & provide financial accommodation
    (iii) Availability of Proper Credit Instruments
    (iv) Existence of Secondary Market
    (v) Ample Resources
    ►amount within country & foreign country( London, New
    York, Paris)
    Importance of Money Market

    (i) Development of Trade and Industry


    Finance- wcr & development of industry
    (ii) Development of capital market
    (iii) Smooth Functioning of Commercial
    Banks
    (iv) Effective Central Bank Control
    Advantages of Money Market
     High Liquidity
     High Profitability
     Safe & Cheap
    Disadvantages of Money Market
     Lack of Integration (hrs,days,center)
     Volatility in Call Money Rates
    Structure of Indian Money Market

    Unorganized Sectors Organized Sectors Co-operative Secto

    Chit Funds RBI Private Sectors Bank


    Money Lenders

    Public Sectors Bank

    Development Banks & Other Financial Institutio

    LIC, UTI,IDBI,IFC
    Foreign Banks Indian Banks
    Difference between Money Markets Capital Market

    Money Market Capital Market


    It is a market for short-term funds It is a market for long-term funds

    Supply funds for WC Supply funds for Fixed Capital

    Money transaction- bills of exchange, cp Money transaction- SS, Deb

    Not have secondary market It have secondary market

    Central bank, commercial bank Development Bank & Insurance Companies


    are involved are involved
    Participants In Financial
    Markets
    Insurance Companies
     Issue contracts to provide a future payment if a
    certain event happens
     Use the fees from these contracts to invest in
    equities, debt and property
    Finance Companies
    Get funds by issuing debentures and borrowing from
    the general public
     Provide short-to-medium-term funds to business,
    particularly leasing finance
    Participants In Financial
    Markets
    Banks
     Are the largest providers of funds to business

     Get most of their funds from deposits

     Provide a wide range of debt securities to business

    Merchant Banks
     Get funds by short-term borrowing

     Lend mainly to corporations in such things as

    foreign currency and commercial bills


    Participants In Financial
    Markets
    Companies
     Often have surplus funds from operations

     Invest funds on money market, commercial bills and


    sometimes buy shares in businesses
    Superannuation/Mutual Funds
     Get funds from the savings of people preparing for
    retirement
     Invest funds on money market, commercial bills and
    sometimes buy shares in businesses
    Government
    Financial Services
     Mobilizing & allocating savings
     Used for industrial sectors
     Savings & allocation of investment
    channels
     Promote industrial sectors
    Scope of Financial Services

    Modern Activities
    Traditional Activities
    ( It is – combitation of Capital money market)

    Fund based activites Non-Fund based activites


    Fund Based Activities
     Primary market activities
     Secondary market activities

     Deals- instruments- cp,Tb

     Deals- Foreign exchange market activities

    fund-based services
     a) Leasing and Hire Purchase

     b) Housing Finance

     c) Credit Cards

     d) Venture Capital
    Non-Fund Based Activities
     Managing the Capital Market- Pre issue &
    post issue
     Making arrangement- placement of Capital
    & debt instrument
     Assisting- process- getting- gvt & other
    clearness
    Modern Activities
     Planning- mergers& acquisition
     Acting – as trustees- for deb holders
     Undertaking risk management
     Promoting credit rating agencies- purpose-
    goodwill
     Determine optimum debt- equity market
    CHARACTERISTICS OF
    FINANCIAL SERVICES
    Customer-Specific
    * study the needs of -customers
    * before deciding their financial strategy -regard to costs,
    liquidity
    Intangibility :
    * institutions -focus on the quality and innovativeness
    * services to build up -credibility.
    People based services
    Market Dynamics
    *socioeconomic changes
    *educational changes
    CHALLENGES BEFORE THE FINANCIAL
    SERVICES SECTOR

     Lack of qualified personnel


     Lack of investors awareness
     Lack of Specialization (brokers)
     Lack of Recent data
    Risk in Financial Service
    •Risk is exposure to uncertainty
    Risk in Financial Service

     Market risks
    * financial risk  
    *uncertainty in the future market value
    Liquidity risk : is financial risk from a
    possible loss of liquidity.
    Liquidity risk
    Specific liquidity risk Systemic liquidity risk

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