Introduction to Financial Institutions and Markets

DR. PRADIPTARATHI PANDA

ASSISTANT PROFESSOR, NISM
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Outline
1. Syllabus or Course Outline
2. Introduction to Financial System

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 Course Overview

➢The use of functional framework to study the financial markets &

intermediaries
➢Studying the financial system and a discussion of the six major
functions the system performs
➢The main components of the financial markets and how (and more
importantly why) they interact with one another
➢Role of financial institutions (and the variety in financial
institutions) in fund intermediation process is discussed in detail
➢Financial regulations and market failures

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Learning Outcomes

Upon completion of this course, students should be able:

➢To understand the functions performed in financial markets
➢To help form a clear view of the various components of financial
markets and intermediaries
➢To understand how and why these components interact
➢To appreciate that quest for efficiency drive financial innovation
➢The areas of equity/debt research, investment management,
investment banking, credit rating, risk management etc.

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 Students activity

➢Group activity – Projects and news article collection

➢Collect the recent developments & current news from leading business news
papers on financial markets. Write a short note on each of the news

➢Each group will evaluate other groups and a final evaluation will be done by
the faculty.

➢Every Friday each group will present for 5 minutes after sending an email to
the concerned faculty.

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 Session Plan
Session No. Topic Reference
(Mishkin Book)
1-2 An Introduction to the Financial System in India Chapter 1& 2
NBFCs, Banks, Insurance and Securities Markets

3-10 Financial Markets and Intermediaries– Chapter 5 & 6

➢ Money Markets
➢ Capital Markets- Regular Markets, international stock
exchanges and SME exchange, Social Stock
Exchange(broking, custodian depositories, trading and
clearing member)
➢ Debt Markets
➢ Foreign exchange Markets
➢ Commodity Markets
Mid Term Examination
11-12 Transfer of resources across time and space – Financial Chapter 11, 12 & 13
Instruments used in the process of fund mobilization
➢ Traditional Financial Instruments
➢ Innovative Financial Instruments

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Session No. Topic Reference
13-14 Assessment and management of risk – Chapter 20
Derivatives
➢ Equity, currency, interest rate and commodity

15-16 Economics of Pooling – Mutual Funds Materials

17-18 Unique features of others funds viz., Venture Note on venture capital – HBR
funds, Private equity funds, Hedge funds, AIFs, The case of SWFs: A new (old)
Sovereign wealth funds etc., force in the capital market –
Darden Business Publishing
A note on Hedge funds:
HBR

19 Provision of information – Stock Indices and Role and function of credit

Credit Rating Agencies-CRISIL, ICRA, CARE rating agencies -
Article
20 Vulnerability of financial markets - Chapter 8
Anatomy of financial market crisis
21 Session by Industry Experts

22-23 Project report presentations and assignments

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Evaluation Process

Course Assessment Areas Weightage

(I) Continuous Evaluation

• • Quizzes 10%
20%
• • Group and Individual Assignments

(II) Mid Term Examination 20%

(III) End Term Examination 50%

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8/12/2020 INTRODUCTION TO FINANCIAL INSTITUTIONS AND MARKETS 10
George A. Akerlof-2001 Nobel Prize
The Market for Lemons 1970. “The Market for
‘Lemons’”: Quality
Uncertainty and the
Market Mechanism.”
Quarterly Journal of
Economics 84: 353–374.

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What is a Financial System?

Q What is a financial system?

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 Fee based intermediaries

Flow of funds
Surplus Units
(buy claims issued by DU) Deficit Units
(Issue claims to SU)

Fund based intermediaries

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 Fee based intermediaries
Angel broking Ltd.
Franklin Advisors
NSE GOI, 9%, 2018
RBI Brick Eagle Investment Advisory Class A shares of Tata
motors
SEBI Clearing Corporation of India Class B Shares of Tata
motors
NSDL NCD of Reliance
Industries Ltd.,

Flow of funds Deficit Units

Surplus Units
(Issue claims to SU)
(buy claims issued by DU)
Reliance Industries Ltd.,
Sunitha Mahajan
Rate of return Tata Motors
Kapil Nath
Real rate of return Snigdha Plastics
Expected Inflation Madhav Sharma
Risk Premium GOI

FD of SBI
CDs Fund based intermediaries
SBI
UTI Mutual Fund
Merchantile Cooperative bank
8/12/2020
Mafatlal Money lender
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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

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Objectives of Financial System

Saving Mobilization Investments National Growth

 Why Financial System?

1. Provision of Liquidity
2. Mobilisation of Savings
3. Size Transformation Function
4. Maturity Transformation Function
5. Risk Transformation Function

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How Financial System Works?

Indirect Finance

Financial
Funds Intermediaries Funds

Funds

Lenders Borrowers
Savers Spenders
Households Financial Households
Funds Funds
Business markets Business firms
Governments Governments
Foreigners Foreigners
Direct Finance
Structure of the Modern Financial System

Financial System

Financial Financial Financial Financial Financial

Market Instruments Participants Regulator Services

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Structure of Financial Market

Financial System

Financial Financial Financial Financial Financial

Market Instruments Participants Regulator Services

Derivatives
Capital Market Money Market FX Market
Market

Primary Secondary Treasury Certificate Call/Notice Commercial

Market Market Bills of Deposit Money Papers

Debt Equity
Market Market

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Instruments Offered in Financial Markets

Financial System

Financial Financial Financial Financial Financial

Market Instruments Participants Regulator Services

Foreign Money Market

Stocks Bonds Derivatives Commodities
Exchange Instruments
Financial Participants

Financial System

Financial Financial Financial Financial Financial

Market Instruments Participants Regulator Services

Brokers
Issuers Investors and Depositories Custodians Registrars
Dealers

Lead Depository
Managers Participants
Financial Regulators

Financial System

Financial Financial Financial Financial Financial

Market Instruments Participants Regulator Services

India US UK

Markets:
Banks: Banks: Federal Markets: Markets: FCA
Securities & Banks: Bank
Reserve Reserve Securities / Prudential
Exchange of England /
Bank of India & Pension Co’s Exchange Regulatory
Board of FCA
Commission Authority
India

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Financial Services Offered

Financial System

Financial Financial Financial Financial Financial

Market Instruments Participants Regulator Services

Mergers & Research & Sales & Market

Underwriting
Acquisition Advise Trading Making

Specialized
Asset
Financial
Management
Solutions
 Six Functions of Financial Market

➢Transfer of resources across time and space-Financial

Markets
➢Allocation of risk-Derivatives
➢Economics of pooling-Mutual Funds
➢Payment system
➢Informational role of asset prices-Asymmetric information
➢Managerial incentives and financial decision making

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 Thank You

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