fim by tausif

8/13/2019 FIM by Tausif

1/31

Presentation on

Financial Institutions and Markets

By :TAUSIF G


2/31

Financial system

What is financial system??Its a structure in an economy to mobilize the

capital from various surplus sectors and distribute

the same to the various needy sectors.It provides a system by which savings are

transformed into investments.


3/31

Financial system

Financial markets

Financial instruments

Financial intermediaries

Financial services

Regulatory bodies


4/31

Financial market

A market wherein financial instruments such

as financial claims, assets, securities are

traded.

Its the place where people and

organization wanting to borrow money are

brought together with those having surplus

funds is called a financial market.


5/31

Roles /features/characteristics of

financial markets

In financial market, the lenders and borrowers

come together for fund mobilization.

The corporate sectors raise short term and

long term funds in the financial market.

The financial instruments are traded in the

financial market.


6/31

The stock exchanges facilitates such above

trade.

The financial markets also facilitates foreign

exchange markets, where one currency isexchanged for another countryscurrency.

The financial market is highly volatile andsusceptible to panic.


7/31

The financial market is mainly dominated by

financial institutions.

The financial market has various segments viz;

stock market, bond market, etc, and also

having primary and secondary segments

among them.


8/31

Needs and functions of financial market

It provides investors avenues.

Financial market assists in channelizing savings

and optimal allocation of capital.

It provides information of prices of securities.

Stock exchanges provides a market to ensure

liquidity.


9/31

Financial market provides for foreign exchange

market.

Financial market facilitates low cost of

transaction and information.

It indicates the inherent strength of the

economy.


10/31

Types of financial markets

Money market

Capital market

Forex market


11/31

Money market

Itsa market for the lending and borrowing of shortterm funds i.e. its a market short term debtinstruments.

It deals with financial assets whose period ofmaturity is less than or up to one year.

Its a market for financial assets that are closedsubstitution for money.


12/31

Objectives of Money market

Its an opportunity for investment in short

term surplus fund.

It gives a scope for removing short term

deficit.

Enables RBI to regulate the liquidity in the

economy.


13/31

Features of Money market

Its a wholesale market of short term debt

instruments.

Its not a single market but a collection of

markets for instruments.

Itsa need based market wherein the demand

and supply of money shape the market.


14/31

It deals with financial assets whose maturity

period is less than or up to one year.

Normally transactions takes place through

phone or mails.


15/31

Functions of Money market

It provides a balancing mechanism to even outthe demand and supply of short term funds.

It provides reasonable access to suppliers andusers of short term funds to fulfill theirrequirement.

It provides focal point for RBI for influencingliquidity and level of interest rates in theeconomy.


16/31

Participants in Money market

RBI

Commercial Banks

Mutual funds NBFC

Provident funds

DFHI STCI, etc.


17/31

Role of RBI in Money market

The aim of RBI to operate in money market is;a) To ensure that liquidity and short term

interest rates are maintained at levels

consistent with the monitoring policy ofobjectives of maintaining price stability with

the help of REPOs, CRR, open market

operations, etc.

b) To ensure adequate flow of credit to the

productive sectors.

c) To bring about order in the forex market.


18/31

Types of financial instruments

Call/Notice money

Treasury bill

Commercial paper Certificate of deposits

Repo and reverse repo


19/31

Call/Notice money

Very short period market or overnight market

Call is for 1 day and notice is for 2-14 days

National holidays are excluded

Players- Bankers, DFHI

Transactions are made on phone or by E-mails


20/31

Treasury bills

Issued by Central govt. through RBI.

Normally issued on discount which has zero

interest.

No physical presence but bought through

Subsidiary general ledger account by the

Investors(commercial banks, NBFC, STCI, DFHI).

Period7 days to 1 year


21/31

Types of treasury bills

1. 91 day treasury bill

Period - 91 days

Auctionevery week on Friday

value100 cr.

2. 182 day treasury billPeriod182 days

Auctionalternate Wednesday

Value100 cr

3. 364 day treasury bill-Period- 364 days

Auctionalternate Wednesday

value500 cr.


22/31

Benefit

Highly liquid able

Very safe as issued by Central govt. through

RBI.

Low level of risk

Short period bill

Shortcomings-

High investors take part

No active secondary markets


23/31

Commercial paper

It is an unpromised discounting paper issuedat a discount rate by eligible corporate who

have permission from RBI.

Conditions Net tangible asset should be at least Rs. 4cr as

per latest balance sheet.

Working capital limit should be within theBanks set up limit.

There should not be any NPAs of the

company, there should be standard assets.


24/31

Commercial Bills

According to Section 5 of the Negotiable

Instruments Act, Commercial Papers are

unsecured promissory notes drawn by the

lender and signed by the borrower promisingto pay the money to the lender or bearer of

the document.


25/31

Types of commercial bills

USANS bills- only on maturity this bill can behonored.

Demand bill- whenever demanded this bill

should be honored. Documentary bill- the documents of property

are kept with the bank and when the bill is

honored, the documents are transferred. Clear bill- when the bill is honored all the

documents are honored.


26/31

Benefits-

Highly liquid in nature and can be transferred.

Shortcomings-

No active secondary markets.

Exchange should be done with schedule

banks.


27/31

Certificate of deposits (CDs)

It is negotiable time deposit instrument.

It can be traded or it is transferrable.

RBI permits authority to issue CDsto;

Schedule commercial banks

All Indian financial institutions (ICICI, IDBI)

Minimum volumeabove 5 lakhs

Lock in period15 days, after 15 days it can be traded

It can be issued at discount on face value


28/31

Repos (repurchase option)

Its a transaction where the seller sells the

security with an assurance to repurchase it in

future at pre determined price.

Reverse repos

Its a transaction where the buyer buys the

security assuring that he will sell the security

to the seller at pre determined price and date.


29/31

Types of Repos-

Market repo/inter bank repo-

In this schedules commercial banks, DFHI,STCI are permitted by RBI to play the Repo

game.

Here Mutual funds are major provider offunds and foreign banks are the borrowers.


30/31

RBI Repo- if RBI wants to inject liquidity, it

buys security from commercial banks is called

RBI repo.

RBI reverse repo- if RBI wants to absorb

liquidity, it sells security to the commercial

banks is called as RBI reverse repo.


31/31

Thank you

fim by tausif

Documents