financial system& rbi sebi final

8/8/2019 Financial System& RBI SEBI FINAL

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Indian Financial System

&

Role of RBI and SEBI


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FINANCIAL SYSTEM

A financial system performs the following functions:

-It serves as a link between savers and investors

-It assists in the selection of the projects to be financed and also reviewsthe performance of such projects periodically.

-It provides payment mechanism for exchange of goods and services.

-It provides a mechanism for the transfer of resources across geographicboundaries.

-It provides a mechanism for managing and controlling the risk involved inmobilizing savings and allocating credit.


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-It promotes the process of capital formation by

bringing together the supply of saving and the

demand for investible funds.

-It helps in lowering the cost of transaction andincrease returns. Reduce cost motives people to

save more.

-It provides you detailed information to the

operators/ players in the market such as individuals,

business houses, Governments etc.


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COMPONENTS OF INDIAN FINANCIAL

SYSTEM

1. Financial institutions

2. Financial Markets

3. Financial Instruments/Assets/Securities

4. Financial Services.


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Financial

Institutions

Regulators Intermediaries

-RBI

-SEBI

Banking Non-Banking

Commercial

Banks

-Public Sector Banks-Private Sector Banks

-Foreign Banks

Cooperative

Banks

Development

Banks

-IFCI

-SFC

Specialized

Banks

-EXIM-SIDBI

Organized Un-organized

-Asset Finance Companies

-Investment Companies

-Loan Companies

-Indigenous Bankers

-Chit Funds


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MONEY MARKETS

As per RBI definitions A market for short terms financial

assets that are close substitute for money, facilitates the

exchange of money in primary and secondary market.

Short term funds (less than one year)

Financial instruments with high liquidity & short maturities


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OBJECTIVES OF MONEY MARKETS

To provide a parking place to employ short term surplusfunds.

To provide room for overcoming short term deficits.

To enable the central bank to influence and regulate

liquidity in the economy through its intervention in this

market.

To provide a reasonable access to users of short-term

funds to meet their requirement quickly, adequately at

reasonable cost.


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MONEY MARKET INSTRUMENTS

T-Bills Short-term debt obligation issued by the government to

finance government activities

Issued for the following tenors 91-days, 182-days and 364-

days

T-bills are zero-coupon bonds

Certificate of Deposits

A CD is a time deposit with a bank

CDs have specific maturity date & interest rate

Minimum Amount Rs 1 lac and in multiples of Rs. 1 lac

withdraws money before its maturity date is subject to a

penalty.


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Repos

It is a transaction in which two parties agree to sell and

repurchase the same security

Repos have terms ranging from 1 night to 30 days

CBLO

An obligation by the borrower to return the money borrowed,at a specified future date

Maturity period ranging from one day to ninety Day

CALL Money Market Refers to short term funds ranging from overnight to

maximum of14 days

NDS CALL


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CAPITAL MARKET

The market where investment instruments like

bonds, equities and mortgages are traded isknown as the capital market.

The primal role of this market is to makeinvestment from investors who have surplus

funds to the ones who are running a deficit.


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The capital market offers both long term andovernight funds.

The different types of financial instruments that

are traded in the capital markets are:

1. Equity instruments

2. Credit market instruments,

3. Insurance instruments,

4. Foreign exchange instruments,

5. Hybrid instruments and

6. Derivative instruments.


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NATURE OF CAPITAL MARKET

The nature of capital market is brought out bythe following facts:

It Has Two Segments

It Deals In Long-Term Securities It Performs Trade-off Function

It Creates Dispersion In Business

Ownership

It Helps In Capital Formation

It Helps In Creating Liquidity


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There are two types of capital market:

Primary market,

Secondary market


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PRIMARY MARKET

It is that market in which shares, debentures

and other securities are sold for the first time

for collecting long-term capital.

This market is concerned with new issues

.Therefore, the primary market is also called

NEW ISSUE MARKET.


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SECONDARY MARKET

The secondary market is that market in which the

buying and selling of the previously issued

securities is done.

The transactions of the secondary market are

generally done through the medium of stock

exchange.

The chief purpose of the secondary market is to

create liquidity in securities


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FINANCIAL INSTRUMENTS

A real or virtual document representing a

legal agreement involving some sort of

monetary value.

In today's financial marketplace, financial

instruments can be classified generally as

equity based, representing ownership ofthe asset, or debt based, representing a

loan made by an investor to the owner of

the asset


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TYPES OF INSTRUMENTS

Cash instruments

Derivative instrument

Foreign Exchange instrument


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CASH INSTRUMENTS

Cash instruments are financial instruments whose value

is determined directly by markets.

They can be divided into securities, which are readilytransferable, and other cash instruments such as loans

and deposits, where both borrower and lender have to

agree on a transfer.


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DERIVATIVES INSTRUMENT

Derivative instruments are financial instruments which

derive their value from the value and characteristics of

one or more underlying assets.

They can be divided into exchange-traded derivatives and

over-the-counter (OTC) derivatives.


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CHARACTERISTIC

Financial instruments can be thought of as easily

tradable packages of capital, each having their own

unique characteristics and structure.

The wide array of financial instruments in today's

marketplace allows for the efficient flow of capital

amongst the world's investors.


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FINANCIAL INSTRUMENTS IN INDIA

Debentures

Equity Shares

Preference Shares Commercial Paper

Call Money Market

Certificate of Deposits


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FINANCIAL SERVICES

Provided by finance companies

Management of money

FINANCIAL INDUSTRY 2009-10

Financial services, banking and insurance grew up 9.7% in 2009-10

According to data from Bloomberg, India's market cap as a percentage of

world market cap was 2.8 per cent as on December 31, 2009

India is the fifth largest life insurance market globally and the segment is

growing at a healthy 32-34 % annually, according to the Life Insurance

Council

Indian bank loans represented a rise of19.1 %, while deposits were up

14.3 %from the previous year


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TYPES OF FINANCIAL SERVICES

Banks

Commercial banks

Investment banks

Banking services

Deposits Loans

Cheques

Debit and credit cards

ATM

Electronic fund transfers

Foreign exchange services


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INVESTMENT SERVICES

ASSET MANAGEMENT

HEDGE FUND MANAGEMENT

FOREIGN EXCHANGE SERVICES

Currency exchange

Wire transfer

Foreign Currency banking

INSURANCE

INTERMEDIATION OR ADVISORY SERVICES

VENTURE CAPITAL

ANGEL INVESTMENT

CONGLOMERATES


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RESERVE BANK OF INDIA

Established on 1st April 1935

Apex financial institution of the countrys financial system

Entrusted with the task of control, supervision, promotion,

development and planning


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OBJECTIVES OF THE RBI

Regulate the issue of Bank notes

Keeping of reserves with a view to securing monetary

stability in India Operate the currency and credit system of the country

to its advantage

Maintaining financial stability and credit

Assist the planned process of development of the

Indian economy


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FUNCTIONS OF THE RBI

Issuing currency notes, i.e to act as a currency authority

Serving as banker to the Government

Acting as bankers bank and supervisor

Monetary regulation and management

Exchange management and control

Collection of data and their publication

Miscellaneous developmental and promotional functions and activities

Agricultural Finance

Industrial Finance

Export Finance

Institutional promotion


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SECURITIES AND EXCHANGE BOARD

OF INDIA

Established in the year 1988 and became an

autonomous body in 1992

Basic Functions..to protect the interests of investors in securities

and to promote the development of, and to regulate

the securities market and for mattersconnected

therewith or incidental thereto


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FUNCTIONS OF SEBI

Regulates Capital Market

Checks Trading of securities

Checks the malpractices in securities market It enhances investor's knowledge on market by

providing education

It regulates the stockbrokers and sub-brokers

To promote Research and Investigation


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OBJECTIVES OF SEBI

To protect the interests of investors in securities

To promote the development of Securities Market

To regulate the securities market For matters connected therewith or incidental

thereto

financial system& rbi sebi final

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