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    Financial System: - An Institutional Framework Existing in A Country To Enable Financial Transactions - Three Main Parts

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    Omkarpratim Mitra
    The financial system consists of financial assets, institutions, and markets. It enables funds to flow from surplus units to deficit units through various instruments for savers like deposits and for borrowers like loans. Key financial institutions that mobilize savings include banks, insurance companies, and mutual funds. Money markets are for short-term funds and include instruments like treasury bills, commercial paper, and certificates of deposit. Capital markets are for long-term funds and include primary stock and bond markets.

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    Financial System: - An Institutional Framework Existing in A Country To Enable Financial Transactions - Three Main Parts

    Uploaded by

    Omkarpratim Mitra
    38 views10 pages
    The financial system consists of financial assets, institutions, and markets. It enables funds to flow from surplus units to deficit units through various instruments for savers like deposits and for borrowers like loans. Key financial institutions that mobilize savings include banks, insurance companies, and mutual funds. Money markets are for short-term funds and include instruments like treasury bills, commercial paper, and certificates of deposit. Capital markets are for long-term funds and include primary stock and bond markets.

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    Financial System

    Original Title

    Financial System

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    The financial system consists of financial assets, institutions, and markets. It enables funds to flow from surplus units to deficit units through various instruments for savers like deposits and for borrowers like loans. Key financial institutions that mobilize savings include banks, insurance companies, and mutual funds. Money markets are for short-term funds and include instruments like treasury bills, commercial paper, and certificates of deposit. Capital markets are for long-term funds and include primary stock and bond markets.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    38 views10 pages

    Financial System: - An Institutional Framework Existing in A Country To Enable Financial Transactions - Three Main Parts

    Uploaded by

    Omkarpratim Mitra
    The financial system consists of financial assets, institutions, and markets. It enables funds to flow from surplus units to deficit units through various instruments for savers like deposits and for borrowers like loans. Key financial institutions that mobilize savings include banks, insurance companies, and mutual funds. Money markets are for short-term funds and include instruments like treasury bills, commercial paper, and certificates of deposit. Capital markets are for long-term funds and include primary stock and bond markets.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 10

    Financial System

    An institutional framework existing in a


    country to enable financial transactions
    Three main parts
    Financial assets (loans, deposits, bonds, equities,
    etc.)
    Financial institutions (banks, mutual funds,
    insurance companies, etc.)
    Financial markets (money market, capital market,
    forex market, etc.)
    Regulation is another aspect of the financial
    system (RBI, SEBI, IRDA, FMC)
    Financial assets/instruments
    Enable channelising funds from surplus units
    to deficit units
    There are instruments for savers such as
    deposits, equities, mutual fund units, etc.
    There are instruments for borrowers such as
    loans, overdrafts, etc.
    Like businesses governments too raise funds
    through issuing of bonds, Treasury bills, etc.
    Instruments like PPF, KVP, etc. are available
    to savers who wish to lend money to the
    government
    Money Market Instruments
    Call money- money borrowed/lent for a day.
    No collateral is required.
    Inter-bank term money- Borrowings among
    banks for a period of more than 14 days
    Treasury Bills- short term instruments issued
    by the Union Govt. to raise money. Issued at a
    discount to the face value
    Certificates of Deposit- Issued by banks to
    raise money. Minimum value is Rs. 1 lakh,
    tradable in the market
    CDs can be issued by banks/FIs
    Money Market Instruments
    (2)
    Commercial Paper (CPs) are issued by
    corporates to raise short term money
    Issued in multiple of 25 lakhs, can be
    issued by companies with a net worth of
    at least 5 crores
    CP is an unsecured promissory note
    privately placed with investors at a
    discount rate to face value. The maturity
    of CP is between 3 and 6 months
    Financial Institutions
    Includes institutions and mechanisms
    which
    Affect generation of savings by the
    community
    Mobilisation of savings
    Effective distribution of savings
    Institutions are banks, insurance
    companies, mutual funds-
    promote/mobilise savings
    Individual investors, industrial and
    Financial Markets
    Money Market- for short-term funds
    (less than a year)
    Organised (Banks)
    Unorganised (money lenders, chit funds,
    etc.)

    Capital Market- for long-term funds


    Primary Issues Market
    Stock Market
    Bond Market
    Organised Money Market
    Call money market
    Bill Market
    Treasury bills
    Commercial bills
    Bank loans (short-term)
    Organised money market comprises
    RBI, banks (commercial and co-
    operative)
    Call money market (1)
    It deals with one-day loans (overnight, to be
    precise) called call loans or call money
    Participants are mostly banks. Also called
    inter-bank call money market.
    The borrowing is exclusively limited to banks,
    who are temporarily short of funds.
    On the lending side, besides banks with
    excess cash and as special cases few FIs like
    LIC, UTI
    All others have to keep their funds in term
    deposits of minimum 15 days with banks to
    earn interest
    Call money market (2)
    Call loans are generally made on a clean
    basis- i.e. no collateral is required
    The main function of the call money market is
    to redistribute the pool of day-to-day surplus
    funds of banks among other banks in
    temporary deficit of funds
    The call market helps banks economise their
    cash and yet improve their liquidity
    It is a highly competitive and sensitive market
    It acts as a good indicator of the liquidity
    position
    Bill Market
    Treasury Bill market- Also called the T-Bill
    market
    These bills are short-term liabilities (91-day, 182-
    day, 364-day) of the Government of India
    It is an IOU of the government, a promise to pay the
    stated amount after expiry of the stated period
    from the date of issue
    They are issued at discount to the face value and at
    the end of maturity the face value is paid
    The rate of discount and the corresponding issue
    price are determined at each auction
    Commercial Bill market- Not as developed in
    India as the T-Bill market

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