The financial system is all about taking money from someone
who has ample of it and making it to reach those who have the
best opportunities to utilise it. This way the economic resources
are allocated most efficiently and best returns are ensured.
Economic transactions are done by various organisations like
banks, pension funds, organised exchanges and insurance
companies and many more.
They are the financial institutions who use various financial
instruments such asbonds, stocks, interests derived on
deposits, credit to the borrowers etc.
OBJECTIVESOF INDIAN FINANCIAL
The main objectives of this system are:
◦To create a structured payment system
◦To give money the time value as it deserves
◦To reduce risks and compensate for the same through offering
products and services
◦To enable the most efficient economic resource allocation
◦To maintain market stability in the economic sector
1. Financial Institutions:-
Here is where the borrowers meet the investors. The latter’s
investment is utilised in various sectors via financial instruments
and investing in the financial market. They can be of any type,
Regulatory, Intermediaries, non-intermediaries and others.
There are organisations which seek the assistance of these
service providers every now and then and strategic ideas
regarding the diversification or restructuring of the unit are
2. Financial Assets:-
All securities and financial elements fall under the broad
category of financial assets. Various investors and credit
seekers have the demand for various types of loans and
Thus the securities are of various types too. A principal is
settled which will be repaid by regular dividends or
interests. Bonds, debentures and equity shares are a few
3. Financial Services:-
These are derived from the Liability Management and Asset
Management companies. These help in both acquiring and
investing the money appropriately. Their assistance is sought
for determining the financing combination. From borrowing to
selling, purchasing to the lending of securities, making
payments to regulating risk exposures- all are looked after by
these service providers.
The clients are myriad starting from mutual fund houses,
acceptance houses, leasing companies to merchant bankers and
4. Financial Markets:-
In financial markets, the exchange of financial assets is
involved in terms of both the creation and transfer of the
same. The difference here with a real transaction is that there
is no direct money involved in the exchange process and
instead of products or services, deposits, loans and other such
financial assets are used for the transaction process.
There are financial instruments involved in this. Here aclaim of
payment of money in the future is made and interest or
dividend is paid on a periodic basis.
This may be mentioned at the last but it is undoubtedly one of
the most important components of the financial system. Money
refers to anything that is used to pay for the products bought or
services used and accepted by the seller too. Money acts as an
exchange medium for repayment and acomplete transaction
process. Money holds the value of the product or service.
The exchange process is eased out when money is utilised. Thus,
the financial system is the common meeting place of the
borrowers and lenders from where both can reap mutual