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FINANCE PPT

The document outlines the structure of the financial system, detailing its institutions, instruments, and markets that facilitate financial transactions in an economy. It emphasizes the role of the Indian financial system in connecting investors and savers, efficient resource mobilization, capital formation, and risk management. Additionally, it categorizes financial markets and instruments, highlighting the importance of financial services in supporting economic growth.

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strawberrycheesecakeicecream35
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36 views11 pages

FINANCE PPT

The document outlines the structure of the financial system, detailing its institutions, instruments, and markets that facilitate financial transactions in an economy. It emphasizes the role of the Indian financial system in connecting investors and savers, efficient resource mobilization, capital formation, and risk management. Additionally, it categorizes financial markets and instruments, highlighting the importance of financial services in supporting economic growth.

Uploaded by

strawberrycheesecakeicecream35
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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STRUCTURE OF

FINANCIAL SYSTEM
INTRODUCTION
• The structure of a financial system
encompasses a wide range of institutions,
instruments, and markets that facilitate This Pho

financial transactions within an economy.


to
by
Unknown
Author is
licensed
under

• It includes entities like banks, insurance


CC BY-N
C

companies, pension funds, brokerage


firms, and investment trusts. Financial
instruments handled by these institutions
range from traditional assets like coins,
currency notes, and stocks to more This Photo by Unknown Author is licensed under
CC BY-NC

complex financial products such as


futures, swaps, and bonds.
Role and Importance of the
Indian Financial System
Connects Investors and Savers: The Monitors Corporate Performance: The
Indian financial system acts as a bridge financial system provides tools and platforms to
between savers and investors, ensuring track corporate performance, ensuring that
that savings are mobilized effectively for resources are allocated to well-performing
productive investments. companies and reducing inefficiencies in the
Efficient Resource Mobilization: By market.
facilitating the allocation of savings into Risk Reduction and Management: It offers
various investment channels, it ensures methods to mitigate risks and manage
optimal use of available funds, thus uncertainties through financial instruments like
promoting economic growth. insurance, derivatives, and futures, safeguarding
Capital Formation: It plays a crucial the interests of investors.
role in the capital formation process, Resource Mobility Across Boundaries: The
which involves saving and investing. system facilitates the transfer of resources across
This is essential for creating assets and geographical areas, ensuring that savings and
driving the overall development of the investments are not limited by regional
economy. constraints, promoting national economic
integration.
Financial structure
The term “financial structure” describes the structure, components, and order
of the financial system. It can be used to broadly categorize the Indian
financial system and Markets.

Informal Structure Formal Structure


Unorganized Market

• The Unorganized Market refers to a segment of the financial system


where financial services are provided without being subject to formal
legal regulations or oversight by authorities like the Reserve Bank of
India (RBI).
• It operates on informal agreements, lacks standardization, and often caters
to individuals and small businesses who might not have access to formal
banking services.
• For example- informal lenders, such as moneylenders, pawnbrokers
FINANCIAL MARKET
Financial markets are platforms where financial assets like stocks, bonds, and currencies are bought
and sold. They ensure the efficient allocation of capital in the economy. Financial markets can be
classified into:

Money Market:
The market for short-term borrowing and lending (less than one year). Instruments include Call
Money Market, Treasury Bills, and Commercial Bills.
Example: Treasury bills, which are short-term government securities.

Capital Market:
The market for long-term finance, dealing in securities with maturity periods longer than one year. It
is divided into:
Primary Market: Where new securities are issued for the first time (Initial Public Offerings - IPO).
Secondary Market: Where existing securities are traded among investors (Stock Exchanges).
Derivative Market: Where financial derivatives like options and futures are traded.
Example: Bombay Stock Exchange (BSE) for secondary market trading.
Financial Instruments
Financial instruments are the legal contracts between two parties that stipulate the future cash flows.
They represent the claim to future payments. They can be categorized by:

• Term:
• Short-Term Instruments: With a maturity of less than one year, such as Treasury Bills.
• Medium-Term Instruments: Typically have a maturity of 1-5 years.
• Long-Term Instruments: Have a maturity of more than five years, such as corporate bonds.

• Type:
• Primary Securities: These include securities directly issued by companies like equity shares and
debentures.
• Secondary Securities: These are created from primary securities, such as derivatives (options,
futures).
• Innovative Instruments: These are more complex and might include convertible bonds or
securitized instruments.
Financial Services
Fund-Based Financial Services:
These services involve providing funds directly to clients. The provider earns income through
interest, dividends, or capital gains.
Examples:
• Leasing: Renting assets to clients in return for periodic payments.
• Hire Purchase: Financing the purchase of goods with payments over time.
• Factoring: Purchasing accounts receivable at a discount to provide liquidity to businesses.

Fee-Based Financial Services:


These services generate income by charging fees for professional expertise, without the institution
deploying its own funds.
Examples:
• Merchant Banking: Providing services like underwriting, loan syndication, and investment advisory.
• Credit Rating: Assessing and providing ratings for the creditworthiness of businesses.
• Mergers and Acquisitions: Assisting companies in M&A activities, and earning fees for their
advisory services.
CONCLUSION
• As India's economy continues to expand and integrate with the
global market, the financial sector is expected to experience
significant growth. Government reforms and advancements in
technology have furthered financial inclusion and innovation,
creating new opportunities for all participants.
• As the financial sector evolves in the digital age, staying
updated on trends and regulations is key. With promising
developments on the horizon, those who effectively navigate
the Indian financial system will be well-positioned to seize the
opportunities it offers, contributing to the country’s sustained
economic progress.

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