2. Introduction
The experiences of the The economic scene in the
post independence period has seen a sea change;
the end result being that the economy has made
enormous progress in diverse fields. There has
been a quantitative expansion as well as
diversification of economic activities 1980s have
led to the conclusion that to obtain all the benefits
of greater reliance on voluntary, market-based
decision-making, India needs efficient financial
systems
3. It is the financial system that supplies the
necessary financial inputs for the
production of goods and services which in
tern promote the well being and standard of
living of the country.
Financial system is a broader term which
brings under its fold the financial markets
(long term & short term.) and the financial
institutions which support the system
4. The major assets traded in the financial
system is to mobilize the savings in the from
money and monetary assets and invest them
to productive ventures.
An efficient functioning of the financial
system facilitates the three flow of funds to
more productive activities and thus
promotes investments.
Thus the financial system provided the
intermediation between savers and investors
and promotes faster economic development.
5. To link the savers & investors.
To inspire the operators to monitor the performance of
the investment.
To achieve optimum allocation of risk bearing.
It makes available price - related information.
It helps in promoting the process of financial
deepening and broadening
7. Banking Institutions: Participate in
the economy's payment mechanism, deposit
liabilities constitute a major part of national
money supply.
Non-Banking Institutions:
LIC, SIDBI, IIBI, IFCI ( All India Financial
Institutions), SFCs & SIDCs
8. Defined as the market in which financial assets are
created or transferred.
These assets represent a claim to the payment of a sum of
money sometime in the future and/or periodic payment
in the form of interest or dividend.
9. Classification
Money market
(Short term instrument)
Capital markets
(Long term instrument)
The most important distinction between the two:
The difference in the period of maturity.
10. Main Function
To channelize savings into short term productive investments
like working capital .
Instruments in Money Market
Call money market
Treasury bills market
Markets for commercial paper
Certificate of deposits
Bills of Exchange
Money market mutual funds
Promissory Note
11. Part of the national money market
Day-to day surplus funds mainly of banks are traded
Short term in nature
Maturity of these loans vary from 1 to 15 days
Lent for 1 day: Call money
Lent for more than 1 day but less than 15 days: Notice money
Convenient interest rate
Highly liquid loan repayable on demand
12. Unsecured Promissory note.
Issued by well known companies with strong and high credit
rating.
Sold directly by the issuers to investors or through agents like
merchant banks and security houses.
Flexible Maturity
Low interest rates with compared to banks.
Imparts a degree of financial stability to the system.
13. Referred as note payable in accounting
It is a contract detailing the terms of a promise by one
party (the maker) to pay a sum of money to the other (the
payee).
The obligation may arise from the repayment of a loan or
from another form of debt.
For example, in the sale of a business, the purchase price
might be a combination of an immediate cash payment
and one or more promissory notes for the balance.
14. Defined as short term deposit by way of usance promissory
notes.
Greater flexibility to investors in the deployment of surplus
funds.
Permitted by the RBI to banks
Maturity of not less than 3 months and upto 1 year.
Transferable in nature
Free negotiability and limited flexibility
15. Invest primarily in money market instruments of very
high quality.
RBI and public financial institution can set it either
directly or through its existing subsidiaries.
MMMF
Open Ended
Close Ended
16. Provided resources needed by medium and large
scale industries.
Purpose for these resources
Expansion
Capacity Expansion
Investments
Mergers and Acquisitions
Deals in long term instruments and sources of funds
17. Main Activity
Functioning as an institutional mechanism to
channelize funds from those who save to those who
needed for productive purpose.
Provides opportunities to various class of individuals
and entities.
18.
19. Primary Markets Secondary Markets
When companies need financial resources The place where such securities are traded by
for its expansion, they borrow money from these investors is known as the secondary
investors through issue of securities. market.
Securities issued Securities like Preference Shares and
a) Preference Shares Debentures cannot be traded in the
b) Equity Shares secondary market.
c) Debentures
Equity shares is issued by the under writers Equity shares are tradable through a private
and merchant bankers on behalf of the broker or a brokerage house.
company.
People who apply for these securities are: Securities that are traded are traded by the
a) High networth individual retail investors.
b) Retail investors
c) Employees
d) Financial Institutions
e) Mutual Fund Houses
f) Banks
One time activity by the company. Helps in mobilising the funds for the
investors in the short run.
20. Primary Securities: Equity, Preference, Debt
and Various combinations.
Secondary Securities: Mutual Fund Units and
Insurance Policies etc.
