Functions of the financial system
- Provision for liquidity.
- Mobilizing and allocating the saving efficiently and effectively. - Monitoring the performance of the investment.
Provide price related information.
- Helps in the creation of financial structure that lowers cost of transaction. - Helps in the process of financial deepening and broadening.
Indian Financial System Broadly divided under 2 heads
Organised in the sense it contains
- Regulators like MoF, SEBI, RBI, IRDA
- Financial Institutions
- Financial Instruments
- Financial Services
- Money lenders
- Local Bankers
- Pawn Brokers too,
Now what is known to be financial systems,
They are business organisations serving as a link between savers and investors and help in credit allocation process. They provide three transformational services - Liability, asset and size transformation
- Maturity transformation.
- Risk transformation..
what is that -
It is a mechanism for trading of financial product under a policy framework. Main participant are borrowers, lenders and financial intermediaries. Their important characteristics are,
- Large volume of transaction at a very high speed
- There are various segments of financial markets
Scope of instant arbitrage
- Highly volatile
- Closely monitored and supervised
Functions of Financial Markets -
- Enabling economic units to exercise their time preference
- Separation, distribution, diversification and reduction of risk - Efficient payment mechanism
- Providing information about companies
- Enhancing liquidity of financial claim.
- Portfolio management
Financial Markets can be Classified into,
Capital Market and Money Market
Capital Market can further be classfied into Equity Market and Debt Market
Equity Markets again classified as Primary and Secondary and Derivatives Markets