Financial system

1. Financial system
-SamhaSidhique
Roll no: 33

2. Financial System
 A financial system is a system that allows the
exchange of funds between lenders, investors, and
borrowers.
 It is an interaction of various intermediaries, market
instruments, policy makers and various regulations to
aid the flow of saving from savers to investors and
checking various abuses faced in the proper
functioning of the system.
 Financial system is a system which supplies the
necessary financial inputs for the production of goods
and service to improve the standard of life and well
being of the nation.

3. Financial system
An institutional framework existing in a country to
enable financial transactions.
 Financial assets / Instruments (loans, deposits, bonds,
equities, etc.)
 Financial institutions (banks, mutual funds, insurance
companies, etc.)
 Financial markets (money market, capital market, forex
market, etc.)
 Financial instruments include(primary and secondary
securities)
 Financial services include (hire purchasing, factoring,
credit rating etc..)
Regulation is another aspect of the financial system
(RBI, SEBI, IRDA)

5. Significance and Definition:
 The term financial system is a set of inter-related activities/services
working together to achieve some predetermined purpose or goal. It
includes different markets, the institutions, instruments, services
and mechanisms which influence the generation of savings,
investment capital formation and growth.
 Van Horne defined the financial system as the purpose of financial
markets to allocate savings efficiently in an economy to ultimate
users either for investment in real assets or for consumption
 According to Robinson, the primary function of the system
is "to provide a link between savings and investment for the
creation of new wealth and to permit portfolio adjustment
in the composition of the existing wealth

7. FINANCIAL SYSTEM IN INDIA
The economic development of a nation is reflected by the progress of the various
economic units, broadly classified into corporate sector, government and
household sector. While performing their activities these units will be placed in a
surplus/deficit/balanced budgetary situations.
There are areas or people with surplus funds and there are those with a deficit. A
financial system or financial sector functions as an intermediary and facilitates the
flow of funds from the areas of surplus to the areas of deficit. A Financial System
is a composition of various institutions, markets, regulations and laws, practices,
money manager, analysts, transactions and claims and liabilities.
Financial System

8.  The experiences of the 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. The financial system is possibly the most
important institutional and functional vehicle for economic transformation
 The word "system", in the term "financial system", implies a set of complex
and closely connected or interlined institutions, agents, practices, markets,
transactions, claims, and liabilities in the economy.
 The financial system is concerned about money, credit and finance; the three
terms are intimately related yet are somewhat different from each other.
Indian financial system consists of financial market, financial instruments and
financial intermediation, financial services.

10.  To link the savers & investors.
 To mobilize and allocate savings
 monitor corporate performance
 provide payment and settlement system
 offer portfolio adjustment facility
 To inspire the operators to monitor the performance
of the investment
 It makes available price - related information.
 It helps in promoting the process of financial
deepening and broadening
Functions of Financial System

11. Key elements of a well functioning
financial system
 A strong legal and regulatory environment
 Stable money
 Sound public finances
 A central bank
 Sound banking system
 Information system
 Well-functioning securities market

13. Financial Institutions
 These are intermediaries that mobilize savings and facilitate the
allocation of funds in an efficient manner.
 Facilitate smooth functioning of the financial system by making
investors and borrowers meet.
 Financial Institutions can also be classified as term-finance
institutions such as IDBI, ICICI, IFCI, SIDBI and IIBI.
 Financial Institutions can be specialized financial Institutions
like EXIM bank, IDFC and sectoral financial Institutions such as
NABARD and NHB.

15. Financial Instruments
 Financial securities are financial instruments that are negotiable and
tradeable.
 2 types of securities:
 Primary securities
• Issued directly by ultimate borrowers of the funds to the ultimate savers or
investors.
• Example: Equity shares, preference shares and debentures.
 Secondary securities
• Not issued directly by ultimate borrowers
• Issued by financial intermediaries to ultimate savers
• Example: Insurance policy, Mutual funds.

16. Financial Services
 These are those that help with borrowing and funding, lending and
investing, Buying and selling securities, making and enabling payments
and settlements and managing risk exposures in financial markets.
 The producers of these financial services are financial intermediaries such
as banks, Insurance companies, mutual funds and stock exchange.
 Financial intermediaries provide key financial services such as leasing,
hire purchase and credit rating.

17. Financial markets
 The main organized financial markets in India are the money
market and capital market.
 Money market is a market for short term securities and
capital market is a market for long term securities.
 Financial markets can also be classified as primary market
and secondary market.
 primary market is the market for new shares and secondary
market is meant for trading in outstanding or existing
shares.
 A financial market is a market for the creation and
exchange of financial assets

18. REGULATORY FRAMEWORK
 The regulators are MoF, SEBI, RBI, IRDA
 It plays a critical role in ensuring the health, soundness,
reliability and stability of the financial system
 It lays down the specific rules for behavior of participants in the
financial system
 necessary to generate, maintain and promote this trust of the
participants.

19. Thank you