Importance Of Indian Financial System

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1.1 LEARNING OBJECTIVES: This chapter will focus a clear idea about:  Meaning of Financial system  Classification of Financial system  To discuss on the financial instruments available for investment 1.2 FINANCIAL SYSTEM: “Financial system” includes two words Finance and System. Finance means the funds or money. The system includes all the bodies or institutions involved in the distribution of funds or in their proper utilization through some investment options. The financial system is a system which comprises of financial markets, financial institutions, financial instruments and financial services. A well-developed financial system is essential for the growth and development. Financial system also includes closely connected institutions…show more content…
The funds borrowed by the investors are invested in various investment options which in turn in beneficial not only for the investors in the form of dividend or interest or capital appreciation but it is also beneficial for the economy as a whole. They mobilize the funds collected from household sectors in the form of deposits and mobilizes it other sectors like industry, agriculture, real estate in the form of loans and advances. 1.3 STRUCTURE OF FINANCIAL SYSTEM: The Indian financial system consists of formal and informal financial system. Based on the financial system financial market, financial instruments and financial institutions can be categorized depending upon functionality. A financial system is a system which includes components like organized and unorganized financial markets, financial institutions, financial services and financial instruments which ensures the mobilization of funds. The role of regulatory bodies is essential to ensure safety of the money invested by the investors and to build up the confidence and attraction of the potential investors towards financial market. The financial system in India is regulated by the Ministry of Finance, Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority which ensures safety of investor’s…show more content…
It is an integral part of the Indian money market where day-to-day surplus funds (mostly of banks) are traded. The loans are of short-term duration (1 to 14 days). Money borrowed for one day is called ‘call money’; if it exceeds the 1 day, but is less than 15 days it is called ‘notice money’. Money lent for more than 15 days is ‘term money’. The borrowing is exclusively limited to banks, which are temporarily short of funds. Call loans are generally made on a clean basis- i.e. no collateral is required. The main function of the call money market is to redistribute the pool of day-to-day surplus funds of banks among other banks in temporary deficit of funds. The call market helps banks economize their cash and yet improve their liquidity. It is a highly competitive and sensitive market. It acts as a good indicator of the liquidity position. Call money market participant:  Those who can both borrow and lend in the market – RBI (through LAF), banks and primary dealers  Once upon a time, select financial institutions viz., IDBI, UTI, Mutual funds were allowed in the call money market only on the lender’s side  These were phased out and call money market is now a pure inter-bank market (since August 2005). Bill market:  Treasury Bill market- Also called the T-Bill market  These bills are short-term liabilities (91-day, 182-day, 364-day) of the Government of

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