2. Introduction
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)
3. (Contd)
Enable channelizing funds from surplus
units to deficit units
Instruments for savers
Instruments for borrowers
Businesses, governments too raise funds
through issuing of bonds, Treasury bills,
etc.
4. FEATURES
It provides an Ideal linkage between
depositors savers and Investors Therefore it
encourages savings and investment.
Financial system facilitates expansion of
financial markets over a period of time.
Financial system should promote deficient
allocation of financial resources of socially
desirable and economically productive
purpose.
Financial system influence both quality and the
pace of economic development.
5. Why financial system?
Financial systems help the organization to
make sound decisions based on cash flow and
available resources
Monitoring funds, or comparing actual income
and expenses versus budgeted amounts,
helps managers ensure that the necessary
funds are in place to complete an activity
Transparency, clear planning and realistic
projections contributes to the credibility of the
organization.
6. (contd)
Most governments require that registered,
charitable organizations create accounts that
track income and expenses.
Establishing financial controls and clear
accounting procedures help ensure that funds
are used for intended purposes.
Funders require reports that demonstrate that
grants were used for intended purposes.
8. FUNCTIONS
Payment System
Pooling of Funds
Transfer of Resources
Risk Management
Price Information for Decentralized Decision Making
Price Discovery Process
Liquidity
Fungibility