BBA IV SEM (NEP) Financial Market and Services

Module No. 1: OVERVIEW OF FINANCIAL SYSTEM

Financial System
A financial system is a set of institutions, services, and markets that work together to facilitate the
transfer of funds between savers and borrowers. The financial system includes a broad range of
financial institutions, such as banks, credit unions, insurance companies, and investment firms. These
institutions provide a variety of financial services, including loans, insurance, and investment advice.

Features of Financial System

The financial system has several key features, including:
1. Intermediation: The financial system acts as an intermediary between savers and borrowers,
channelling funds from those who have excess savings to those who need to borrow funds.
2. Payment system: The financial system provides a payment system that enables people to exchange
goods and services with one another, using various payment methods such as cash, checks, and
electronic transfers.
3. Risk management: The financial system provides a range of financial instruments, such as
insurance and derivatives, that help to manage risk and protect against unexpected losses.
4. Price discovery: Financial markets provide a mechanism for determining the price of financial
instruments, based on supply and demand.
5. Liquidity: The financial system provides liquidity, which is the ability to quickly and easily convert
an asset into cash without losing value.
6. Regulation: The financial system is subject to regulation by government authorities, which oversee
the safety and soundness of financial institutions and markets.
7. Innovation: The financial system is constantly evolving, with new financial instruments and
services being developed to meet the changing needs of consumers and businesses.

Constituents of the financial system

There are several constituents of the financial system, including:
1. Financial institutions: These include banks, credit unions, insurance companies, and other
organizations that provide financial services to individuals and businesses.
2. Financial markets: These are the places where financial instruments, such as stocks, bonds, and
commodities, are traded.
3. Financial instruments: These are the products that are traded in financial markets, such as stocks,
bonds, and derivatives
4. Payment systems: These are the systems that enable people to exchange goods and services with
one another, using various payment methods such as cash, checks, and electronic transfers.

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5. Regulators: These are the government authorities that oversee the safety and soundness of financial
institutions and markets, and ensure that they are operating in a fair and transparent manner.
6. Consumers: These are the individuals and businesses that use financial services and products to
manage their finances, invest their money, and protect against risk.
7. Innovators: These are the individuals and organizations that develop new financial products and
services, and create new ways of delivering financial services to consumers and businesses.

Financial institutions
Financial institutions are organizations that provide financial services to individuals and businesses.
Examples of financial institutions include banks, credit unions, insurance companies, investment
banks, and brokerage firms. These institutions play a crucial role in the economy by channeling funds
from savers to borrowers, providing payment services, and helping individuals and businesses manage
their finances. They also create financial products such as loans, mortgages, credit cards, and insurance
policies, which help people to achieve their financial goals. Financial institutions are regulated by
government authorities to ensure that they operate in a safe and sound manner and protect the interests
of consumers.

Financial markets
Financial markets are where financial instruments, such as stocks, bonds, and derivatives, are traded.
Financial markets are divided into primary and secondary markets. In the primary market, new
securities are issued, while in the secondary market, existing securities are traded. Financial markets
also include foreign exchange markets, where different currencies are bought and sold, and commodity
markets, where raw materials such as gold, oil, and wheat are traded.

Financial instruments
Financial instruments are assets that can be bought and sold, such as stocks, bonds, and options. Stocks
represent ownership in a company, while bonds represent a loan to a company or government. Options
are contracts that give the holder the right, but not the obligation, to buy or sell a financial instrument
at a certain price.

Overall, the financial system plays a critical role in facilitating economic growth and development. It
allows individuals and businesses to access the funds they need to invest in new projects and expand
their operations. By providing a range of financial services and instruments, the financial system helps
to promote innovation, entrepreneurship, and economic prosperity.

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Module No. 2: FINANCIAL INSTITUTIONS

Financial institutions are organizations that provide financial services to individuals and businesses.
They play a crucial role in the economy as intermediaries between savers and borrowers. Some
characteristics of financial institutions include their role as intermediaries between savers and
borrowers, the use of leverage to amplify returns, and the importance of trust and reputation in their
operations.

Characteristics of Financial Institutions

Financial institutions a crucial role in the economy by mobilizing savings and channelling them into
productive investments. The following are the characteristics of financial institutions:
1. Financial intermediation: Financial institutions act as intermediaries between borrowers and
lenders. They collect funds from savers and lend them to borrowers, earning a profit from the
difference in interest rates.
2. Liquidity transformation: Financial institutions provide liquidity to savers by allowing them to
withdraw their funds on demand, while at the same time investing in long-term assets that are less
liquid.
3. Risk management: Financial institutions manage risk by diversifying their portfolios across
different types of assets and borrowers. They also use financial instruments such as derivatives to
hedge against risk.
4. Information asymmetry: Financial institutions have access to more information about borrowers
than savers. They use this information to assess the creditworthiness of borrowers and make lending
decisions.
5. Regulation: Financial institutions are subject to regulation by government agencies to ensure their
safety and soundness. They are required to maintain minimum capital levels and adhere to strict
accounting and reporting standards.
6. Innovation: Financial institutions are constantly innovating to meet the changing needs of their
customers. They develop new financial products and services, such as mobile banking and online
trading platforms.
These characteristics distinguish financial institutions from other types of organizations and highlight
their importance in the economy. They help to mobilize savings, allocate capital, and manage risk,
contributing to economic growth and development.
.

Classification of Financial Institutions

Financial institutions can be broadly categorized into two groups: money market institutions and
capital market institutions. Money market institutions deal with short-term financial instruments, while
capital market institutions deal with long-term financial instruments.

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Money Market Institutions

Money market institutions include banks, non-bank financial companies (NBFCs), mutual funds, and
other organizations that deal with short-term financial instruments such as treasury bills, commercial
paper, and certificates of deposit.
Money market institutions are financial institutions that deal with short-term financial instruments.
These institutions help in the efficient allocation of short-term funds in the economy. The following
are the types of money market institutions:
1. Banks: Banks are the most common type of money market institution. They accept deposits from
customers and provide loans to individuals and businesses. They also provide other financial services
such as foreign exchange, investment management, and insurance.
2. Non-Bank Financial Companies (NBFCs): NBFCs are financial institutions that provide banking
services without a banking license. They provide a wide range of financial services such as loans,
leasing, hire-purchase, and investment services. Examples of NBFCs in India include Bajaj Finance,
L&T Finance, and Mahindra & Mahindra Financial Services.
3. Mutual Funds: Mutual funds are investment companies that pool money from investors to purchase
securities such as stocks, bonds, and other financial instruments. They provide investors with the
opportunity to invest in a diversified portfolio of securities with relatively low investment amounts.
Examples of mutual funds in India include SBI Mutual Fund, HDFC Mutual Fund, and ICICI
Prudential Mutual Fund.
4. Discount and Finance House of India (DFHI): DFHI is a financial institution that deals in short-
term money market instruments such as treasury bills, commercial paper, and certificates of deposit.
It provides finance to banks and other financial institutions.
5. Primary Dealers: Primary dealers are financial institutions that deal in government securities such
as treasury bills, bonds, and other securities. They are authorized by the Reserve Bank of India (RBI)
to participate in the primary auctions of government securities. Examples of primary dealers in India
include SBI DFHI, ICICI Securities Primary Dealership, and Kotak Mahindra Primary Dealership.
6. Commercial Paper (CP) Issuers: CP issuers are companies that issue commercial paper to raise
short-term funds. CP is a short-term debt instrument that is issued by companies with good credit
ratings. Examples of CP issuers in India include Reliance Industries, Tata Steel, and Larsen & Toubro
These money market institutions play a crucial role in the economy by providing short-term funds to
individuals and businesses. They help in the efficient allocation of funds and contribute to the overall
growth of the economy.

Capital Market Institutions

Capital market institutions include stock exchanges, investment banks, and other organizations that
deal with long-term financial instruments such as stocks, bonds, and other securities.

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Capital market institutions are financial institutions that deal with long-term financial instruments.
These institutions help in the efficient allocation of long-term funds in the economy. The following
are the types of capital market institutions with examples:
1. Stock exchanges: Stock exchanges are financial institutions that provide a platform for buying and
selling of securities such as stocks and bonds. Examples of stock exchanges in India include Bombay
Stock Exchange (BSE), National Stock Exchange (NSE), and Calcutta Stock Exchange (CSE).
2. Investment banks: Investment banks are financial institutions that help companies and
governments in raising capital by underwriting securities and providing advisory services. Examples
of investment banks in India include Goldman Sachs, Morgan Stanley, and JP Morgan.
3. Merchant banks: Merchant banks are financial institutions that provide a wide range of financial
services such as corporate finance, project finance, and advisory services. Examples of merchant banks
in India include ICICI Securities, Kotak Mahindra Bank, and SBI Capital Markets.
4. Mutual funds: Mutual funds are investment companies that pool money from investors to purchase
securities such as stocks, bonds, and other financial instruments. They provide investors with the
opportunity to invest in a diversified portfolio of securities with relatively low investment amounts.
Examples of mutual funds in India include SBI Mutual Fund, HDFC Mutual Fund, and ICICI
Prudential Mutual Fund.
5. Venture capital firms: Venture capital firms are financial institutions that provide capital to start-
up companies and small businesses that have high growth potential. Examples of venture capital firms
in India include Sequoia Capital, Accel Partners, and Nexus Venture Partners.
6. Pension funds: Pension funds are financial institutions that manage retirement savings of
individuals and provide long-term investment options. Examples of pension funds in India include
Employees' Provident Fund Organisation (EPFO), Life Insurance Corporation of India (LIC), and
National Pension System (NPS).
These capital market institutions play a vital role in the economy by providing long-term funds to
individuals and businesses. They help in the efficient allocation of funds and contribute to the overall
growth of the economy.

Industrial Finance Corporation of India (IFCI)

The Industrial Finance Corporation of India (IFCI) was established in 1948 as a statutory corporation
under the Industrial Finance Corporation Act, 1948.

The main objectives of IFCI are:

1. To provide medium and long-term financial assistance to industrial enterprises in India.
2. To promote industrial development by encouraging the growth of new industries and the expansion
of existing ones.

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3. To provide technical and managerial assistance to industrial enterprises.

4. To promote the development of capital markets in India.

The functions of IFCI are as follows:

1. Term lending: IFCI provides medium and long-term loans to industrial enterprises for the purpose
of setting up new projects, expansion, modernization, and diversification.
2. Underwriting and direct subscription of shares and debentures: IFCI underwrites and subscribes to
the shares and debentures of industrial enterprises to help them raise capital.
3. Guaranteeing of loans: IFCI guarantees loans raised by industrial enterprises from banks and
financial institutions to help them obtain credit.
4. Providing technical and managerial assistance: IFCI provides technical and managerial assistance
to industrial enterprises to help them improve their operations and management.
5. Promoting capital markets: IFCI promotes the development of capital markets in India by providing
financial assistance to stock exchanges, underwriting of securities, and other related activities.
6. Merchant banking: IFCI provides merchant banking services such as project advisory, mergers and
acquisitions, and corporate restructuring.
Overall, IFCI plays a crucial role in the development of the Indian industrial sector by providing
financial assistance and other support to industrial enterprises.

Industrial Development Bank of India (IDBI)

The Industrial Development Bank of India (IDBI) was established in 1964 as a wholly-owned
subsidiary of the Reserve Bank of India. In 1976, it was transformed into a statutory corporation under
the Industrial Development Bank of India Act, 1964.

The main objectives of IDBI are:

1. To provide financial assistance to industrial enterprises in India.
2. To promote industrial development by encouraging the growth of new industries and the expansion
of existing ones.
3. To coordinate the activities of other financial institutions in India.

The functions of IDBI are as follows:

1. Term lending: IDBI provides medium and long-term loans to industrial enterprises for the purpose
of setting up new projects, expansion, modernization, and diversification.
2. Underwriting and direct subscription of shares and debentures: IDBI underwrites and subscribes to
the shares and debentures of industrial enterprises to help them raise capital.

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3. Guaranteeing of loans: IDBI guarantees loans raised by industrial enterprises from banks and
financial institutions to help them obtain credit.
4. Refinancing: IDBI refinances loans extended by other financial institutions to industrial enterprises.
5. Promoting capital markets: IDBI promotes the development of capital markets in India by providing
financial assistance to stock exchanges, underwriting of securities, and other related activities.
6. Merchant banking: IDBI provides merchant banking services such as project advisory, mergers and
acquisitions, and corporate restructuring.
7. Investment banking: IDBI invests in the equity and debt securities of industrial enterprises.

Overall, IDBI plays a crucial role in the development of the Indian industrial sector by providing
financial assistance and other support to industrial enterprises. It also coordinates the activities of other
financial institutions in India, contributing to the development of the Indian financial system.

State Financial Corporations (SFCs)

State Financial Corporations (SFCs) were established in India in 1951 under the State Financial
Corporations Act.
The main objective of SFCs is to provide long-term financial assistance to small and medium-sized
enterprises (SMEs) in India.

The functions of SFCs are as follows:

1. Providing financial assistance: SFCs provide long-term financial assistance to SMEs for setting up
new projects, expansion, modernization, and diversification.
2. Underwriting and direct subscription of shares and debentures: SFCs underwrite and subscribe to
the shares and debentures of SMEs to help them raise capital.
3. Guaranteeing of loans: SFCs guarantee loans raised by SMEs from banks and financial institutions
to help them obtain credit.
4. Refinancing: SFCs refinances loans extended by other financial institutions to SMEs.
5. Promoting entrepreneurship: SFCs promote entrepreneurship by providing assistance to SMEs in
the form of technical, managerial, and marketing advice.
6. Providing leasing and hire-purchase finance: SFCs provide leasing and hire-purchase finance to
SMEs for the acquisition of machinery and equipment.
7. Providing factoring services: SFCs provide factoring services to SMEs, which involves the purchase
of accounts receivable at a discount.

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Overall, SFCs play a crucial role in the development of the Indian SME sector by providing long-term
financial assistance and other support to SMEs. It also promotes entrepreneurship and provides leasing,
hire-purchase, and factoring services to SMEs, contributing to the development of the Indian financial
system.

Industrial Credit and Investment Corporation of India (ICICI)

Industrial Credit and Investment Corporation of India (ICICI) is a leading financial institution in India
that provides a wide range of financial services to customers across the country.

The main objectives of ICICI are as follows:

1. Providing financial assistance: ICICI provides financial assistance to individuals and businesses for
various purposes, including setting up new businesses, expansion, modernization, and diversification.
2. Providing investment banking services: ICICI provides investment banking services to clients,
including mergers and acquisitions, equity and debt underwriting, and advisory services.
3. Providing project finance: ICICI provides project finance to businesses for setting up new projects
or expanding existing ones.
4. Providing foreign currency loans: ICICI provides foreign currency loans to businesses for import
and export purposes.
5. Providing trade finance: ICICI provides trade finance services to businesses, including letters of
credit, guarantees, and other trade finance instruments.
6. Providing retail banking services: ICICI also provides retail banking services to individuals,
including savings accounts, credit cards, personal loans, and home loans
7. Providing insurance services: ICICI provides insurance services to customers, including life
insurance, health insurance, and general insurance.

The main functions of ICICI are as follows:

1. Retail banking: ICICI Bank provides a range of retail banking services, including savings accounts,
current accounts, fixed deposits, loans, credit cards, and insurance products.
2. Corporate banking: ICICI Bank provides a range of corporate banking services, including working
capital finance, term loans, trade finance, cash management services, and treasury services.
3. Investment banking: ICICI Bank provides investment banking services, including mergers and
acquisitions, equity and debt capital markets, project finance, and structured finance.
4. Wealth management: ICICI Bank provides wealth management services, including investment
advisory, portfolio management, and estate planning.
5. International banking: ICICI Bank provides international banking services, including trade finance,
correspondent banking, and foreign exchange services.

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6. Rural and agricultural banking: ICICI Bank provides a range of banking services to rural and
agricultural customers, including crop loans, tractor loans, and Kisan credit cards.

Overall, ICICI plays a crucial role in the development of the Indian financial system by providing a
wide range of financial services to individuals and businesses across the country. It provides financial
assistance, investment banking services, project finance, foreign currency loans, trade finance, retail
banking services, and insurance services to customers, contributing to the growth and development of
the Indian economy.

Export-Import Bank of India (EXIM)

Export-Import Bank of India (EXIM) is a specialized financial institution in India that provides
financial assistance to Indian exporters and importers.

The main objectives of EXIM are as follows:

1. Providing financial assistance to exporters: EXIM provides financial assistance to Indian exporters,
including pre-shipment credit, post-shipment credit, export credit guarantees, and export finance.
2. Providing financial assistance to importers: EXIM provides financial assistance to Indian importers,
including import finance, overseas investment finance, and lines of credit.
3. Promoting exports: EXIM promotes exports by providing assistance to Indian exporters, including
export finance, export credit guarantees, and other export-related services.
4. Promoting joint ventures: EXIM promotes joint ventures between Indian companies and foreign
companies by providing financial assistance and other support.
5. Supporting export-oriented industries: EXIM supports export-oriented industries in India by
providing financial assistance and other support.
6. Providing advisory services: EXIM provides advisory services to Indian exporters and importers,
including guidance on export and import procedures, trade finance, and other related matters.

EXIM Bank of India performs the following functions:

1. Providing export credit: EXIM provides export credit to Indian exporters to finance their export-
related activities.
2. Providing import credit: EXIM provides import credit to Indian importers to finance their import-
related activities.
3. Providing lines of credit: EXIM provides lines of credit to foreign governments, banks, and other
institutions to finance imports from India.
4. Providing export credit guarantees: EXIM provides export credit guarantees to Indian exporters to
protect them against losses arising from non-payment by foreign buyers.

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5. Providing advisory services: EXIM provides advisory services to Indian exporters and importers on
various aspects of international trade, including export and import procedures, trade finance, and other
related matters.
6. Promoting exports: EXIM promotes exports by providing assistance to Indian exporters, including
export finance, export credit guarantees, and other export-related services.
7. Promoting joint ventures: EXIM promotes joint ventures between Indian companies and foreign
companies by providing financial assistance and other support.

Overall, EXIM plays a crucial role in the development of the Indian economy by providing financial
assistance and other support to Indian exporters and importers. It promotes exports, joint ventures, and
export-oriented industries, and provides advisory services to Indian exporters and importers,
contributing to the growth and development of the Indian economy.

National Small Industries Development Corporation (NSIDC)

The NSIDC was established in 1955 with the objective of promoting, developing, and financing small-
scale industries in India. The NSIDC provides a wide range of support services to small-scale
industries, including financial assistance, marketing support, technology support, and other related
services.

The functions of the NSIDC are as follows:

1. Financial Assistance: The NSIDC provides financial assistance to small-scale industries in the form
of term loans, working capital loans, and other types of credit facilities. The NSIDC also provides
assistance in obtaining collateral-free loans, which helps small-scale industries in meeting their
working capital requirements.
2. Marketing Support: The NSIDC provides marketing support to small-scale industries by procuring
and distributing their products, promoting their products through exhibitions and trade fairs, and
providing export assistance. The NSIDC assists small-scale industries in identifying potential markets
for their products, and helps them in developing marketing strategies to reach out to customers.
3. Technology Support: The NSIDC provides technology support to small-scale industries by
providing technical consultancy services, conducting training programs, and organizing workshops on
various aspects of technology. The NSIDC assists small-scale industries in adopting new technologies,
and helps them in upgrading their existing technologies.
4. Infrastructure Support: The NSIDC provides infrastructure support to small-scale industries by
developing industrial estates, providing factory sheds, and other related facilities. The NSIDC develops
industrial estates in various parts of the country, which provides small-scale industries with access to
basic infrastructure facilities such as power, water, and transport.
5. Entrepreneurship Development: The NSIDC promotes entrepreneurship by providing assistance to
new entrepreneurs in setting up their businesses, and by providing training programs on various aspects

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of entrepreneurship. The NSIDC also provides assistance in obtaining patents and trademarks, which
helps small-scale industries in protecting their intellectual property rights.
6. Research and Development: The NSIDC conducts research and development activities to promote
the growth and development of small-scale industries in the country. The NSIDC also provides
assistance in obtaining quality certifications, which helps small-scale industries in meeting the quality
standards required by customers.
Overall, the NSIDC plays a vital role in the development of small-scale industries

National Industrial Development Corporation (NIDC)

The National Industrial Development Corporation (NIDC) was set up in India to promote industrial
development in the country.
The objectives of the NIDC are to provide financial assistance, technical assistance, and other support
services to industries in the country. The NIDC aims to promote the growth of industries and to create
employment opportunities.

Some of the key functions of the NIDC are as follows:

1. Providing financial assistance: The NIDC provides financial assistance to industries in the country.
The NIDC provides loans, equity, and other financial instruments to industries to promote their growth.
2. Technical assistance: The NIDC provides technical assistance to industries in the country. The
NIDC provides technical know-how, consultancy services, and other support services to industries to
help them improve their operations.
3. Setting up industrial estates: The NIDC sets up industrial estates and parks across the country to
provide infrastructure facilities to industries. These industrial estates are equipped with modern
facilities such as power, water, and transportation facilities.
4. Developing backward areas: The NIDC promotes the development of backward areas in the country
by setting up industries in these areas. This helps in creating employment opportunities and promoting
the growth of industries in these areas.
5. Industry partnerships: The NIDC works closely with various industries and organizations to identify
their requirements and provide support services accordingly. The NIDC also works with other
government agencies to promote industrial development in the country.
Overall, the NIDC plays a vital role in promoting industrial development in the country. The NIDC
provides financial assistance, technical assistance, and other support services to industries in the
country. The NIDC also sets up industrial estates and parks, promotes the development of backward
areas, and works closely with industries to promote their growth.

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RBI Measures for NBFC’s

he Reserve Bank of India (RBI) has taken several measures to regulate and strengthen the Non-
Banking Financial Companies (NBFCs) in the country. Some of the key measures taken by the RBI
are as follows:
1. Capital Adequacy: The RBI has made it mandatory for NBFCs to maintain a minimum capital
adequacy ratio (CAR) of 15%. This ensures that NBFCs have sufficient capital to absorb losses and
meet their financial obligations.
2. Risk Management: The RBI has mandated that NBFCs implement a robust risk management system.
This includes measures such as credit risk assessment, asset-liability management, and liquidity risk
management.
3. Asset Classification: The RBI has mandated that NBFCs follow the same asset classification norms
as banks. This ensures that NBFCs classify their assets correctly and provide for any potential losses.
4. Liquidity Management: The RBI has mandated that NBFCs maintain sufficient liquidity to meet
their obligations. The RBI has also introduced a liquidity coverage ratio (LCR) for NBFCs to ensure
that they have sufficient high-quality liquid assets to meet their short-term obligations.
5. Governance: The RBI has mandated that NBFCs have a strong governance structure in place. This
includes measures such as a board of directors, an audit committee, and a risk management committee.
Overall, the RBI has taken several measures to regulate and strengthen the NBFCs in the country. The
RBI has mandated that NBFCs maintain a minimum capital adequacy ratio, implement a robust risk
management system, follow the same asset classification norms as banks, maintain sufficient liquidity,
and have a strong governance structure in place. These measures have helped in improving the
financial stability of the NBFC sector in the country.

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Module No. 3: FINANCIAL SERVICES

Financial Services are services provided by the finance industry, which includes a wide range of
businesses that manage money, including credit unions, banks, credit-card companies, insurance
companies, accountancy companies, consumer-finance companies, stock brokerages, investment
funds, and some government-sponsored enterprises.
Financial services firms aim to provide solutions to their clients' financial needs, helping them to
achieve their financial goals, and to manage their money effectively. These services can include
investment advice, portfolio management, retirement planning, insurance, and banking services.
Financial services firms also provide loans to individuals and businesses to help them finance their
projects and achieve their financial goals.

Objectives
1. Managing money: Financial services help individuals and businesses manage their money by
providing tools such as bank accounts, credit cards, and financial planning services.
2. Investing for the future: Financial services help individuals and businesses invest for the future by
providing access to investment products such as stocks, bonds, and mutual funds.
3. Obtaining credit or loans: Financial services help individuals and businesses obtain credit or loans
to support their goals, such as buying a home or starting a business.
4. Risk management: Financial services help individuals and businesses manage risk by providing
insurance products such as life insurance, health insurance, and property insurance.
5. Wealth management: Financial services help high net worth individuals manage their wealth
through investment management, estate planning, and tax planning services.
6. Financial education: Financial services provide financial education to help individuals and
businesses make informed decisions about their money, investments, and credit.
7. Payment services: Financial services provide payment services such as online bill payment, wire
transfers, and mobile payments to make it easier for individuals and businesses to make transactions.
8. Foreign exchange: Financial services provide foreign exchange services to help individuals and
businesses manage currency risk when conducting international transactions. The ultimate goal of
financial services is to help people achieve their financial goals and improve their overall financial
well-being.

Functions of Financial Services

1. Facilitating transactions: Financial services help facilitate transactions between individuals and
businesses by providing payment services such as credit cards, online payments, and wire transfers.
2. Providing credit: Financial services provide credit to individuals and businesses, allowing them to
purchase goods and services or invest in their future.
3. Managing risk: Financial services help individuals and businesses manage risk by providing
insurance products such as life insurance, health insurance, and property insurance.
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4. Investing: Financial services provide investment products such as stocks, bonds, and mutual funds
to help individuals and businesses grow their wealth.
5. Providing financial advice: Financial services provide financial advice to help individuals and
businesses make informed decisions about their money, investments, and credit.
6. Managing wealth: Financial services provide wealth management services to help high net worth
individuals manage their wealth through investment management, estate planning, and tax planning
services.
7. Providing foreign exchange services: Financial services provide foreign exchange services to help
individuals and businesses manage currency risk when conducting international transactions.
8. Conducting research: Financial services conduct research to better understand financial markets,
investment trends, and consumer behavior.

Characteristics of financial services:

1. Intangibility: Financial services are intangible, meaning they cannot be seen, touched, or felt. For
example, a bank account or an insurance policy is a financial service that cannot be physically held.
2. Customer involvement: Financial services require customer involvement, as customers must
provide information about their financial situation to receive financial advice or obtain credit.
3. Customization: Financial services can be customized to meet the specific needs of individual
customers, such as investment portfolios tailored to a customer's risk tolerance.
4. Perishability: Financial services are perishable, meaning they cannot be stored for future use. For
example, a missed opportunity to invest in a stock cannot be regained.
5. Variability: The quality of financial services can vary depending on the provider, making it
important for customers to choose a reputable provider.
6. Regulation: Financial services are heavily regulated to protect consumers from fraud and ensure
that providers operate in a fair and transparent manner.
7. Complexity: Financial services can be complex, making it important for customers to have access
to financial advice and education to make informed decisions.
8. Interdependence: Financial services are interdependent, meaning that changes in one part of the
financial system can affect other parts of the system.

Types of financial services

The types of financial services are as follows:
1. Banking Services: These services include deposit accounts, such as checking and savings accounts,
as well as lending services, such as personal loans, mortgages, and credit cards.

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2. Investment Services: These services include investment advice, brokerage services, and access to
investment products, such as stocks, bonds, and mutual funds.
3. Insurance Services: These services include protection against financial losses, such as life
insurance, health insurance, and property and casualty insurance.
4. Retirement Services: These services include retirement planning and investment products, such as
individual retirement accounts (IRAs) and 401(k) plans.
5. Wealth Management Services: These services are designed for high net worth individuals and
include investment management, financial planning, and estate planning.
6. Payment Services: These services include electronic payment systems, such as credit and debit
cards, as well as mobile payment services.
7. Foreign Exchange Services: These services include currency exchange, money transfers, and
international payment services.
8. Tax Services: These services include tax preparation, filing, and planning services.
9. Real Estate Services: These services include real estate brokerage, property management, and real
estate investment services.

Merchant Banking
Merchant banking is a type of financial service that provides capital and financial advice to businesses.
Merchant banks primarily deal with large corporations and high net worth individuals and offer a range
of services such as capital raising, corporate finance, advisory services, underwriting, asset
management, research, syndication, and global reach.
Merchant banks help businesses raise capital through various means such as issuing securities, private
equity, and venture capital. They also provide corporate finance services such as mergers and
acquisitions, restructuring, and divestitures. Merchant banks provide advisory services to businesses
on matters such as financial planning, risk management, and strategic planning.
Merchant banks underwrite securities offerings and guarantee the sale of securities to investors. They
manage assets on behalf of businesses and high net worth individuals. Merchant banks conduct
research on financial markets, industries, and economic trends to provide insights to businesses and
investors. Merchant banks syndicate large financial transactions such as project finance, leveraged
buyouts, and real estate deals.
Merchant banks have a global reach and can provide financial services to businesses operating in
different countries. They develop long-term relationships with their clients and provide ongoing
financial advice and support.
Merchant banking differs from commercial banking in that merchant banks do not accept deposits
from the general public. Merchant banks provide specialized financial services to businesses and high

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net worth individuals, while commercial banks provide financial services such as deposits, loans, and
credit cards to the general public.

Functions and operations of MB

The functions and operations of merchant banking are as follows:
1. Capital Raising: Merchant banks help companies raise capital by issuing securities, such as stocks
and bonds, in the capital markets.
2. Underwriting: Merchant banks underwrite securities offerings by guaranteeing to purchase any
unsold securities.
3. Syndication: Merchant banks form syndicates of investors to finance large projects or acquisitions.
4. Advisory Services: Merchant banks provide advisory services to companies on mergers and
acquisitions, restructuring, and other strategic initiatives.
5. Project Finance: Merchant banks provide financing for large infrastructure projects, such as power
plants, highways, and airports.
6. Private Equity: Merchant banks invest in private companies and provide them with capital,
strategic guidance, and operational support.
7. Venture Capital: Merchant banks provide financing and support to startups and early-stage
companies.
8. Wealth Management: Merchant banks offer wealth management services to high net worth
individuals, such as investment management, financial planning, and estate planning.
9. Research: Merchant banks conduct research on companies and industries to inform their investment
decisions and advisory services.
10. Trading: Merchant banks trade securities, currencies, and other financial instruments in the capital
markets.

Leasing
Leasing is a financial service that allows a business or individual to use an asset for a specified period
of time in exchange for regular payments. The asset can be anything from equipment to real estate.
Leasing is an alternative to purchasing an asset outright, and it allows businesses to conserve cash and
avoid the risks and costs associated with ownership. The lease agreement outlines the terms of the
lease, including the lease term, payment amount, and any restrictions or conditions. At the end of the
lease term, the lessee can return the asset, renew the lease, or purchase the asset for a predetermined
price.

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Mutual funds
Mutual funds are investment vehicles that pool money from multiple investors to purchase a portfolio
of stocks, bonds, or other securities. Mutual funds are managed by professional fund managers who
make investment decisions on behalf of the investors. Each investor in the mutual fund owns a share
of the portfolio, and the value of the share is determined by the performance of the underlying
securities.
Mutual funds offer several benefits to investors, including diversification, professional management,
and liquidity. Diversification means that the mutual fund portfolio is invested in a variety of securities,
which helps to spread the risk and reduce the impact of any one security on the overall performance
of the fund. Professional management means that the fund manager has expertise in selecting and
managing securities, which can lead to better performance than an individual investor could achieve
on their own. Liquidity means that investors can easily buy and sell shares of the mutual fund, which
provides flexibility and convenience.
Mutual funds come in many different types, including equity funds, bond funds, money market funds,
and balanced funds. Equity funds invest primarily in stocks, bond funds invest primarily in bonds,
money market funds invest in short-term debt securities, and balanced funds invest in a mix of stocks
and bonds. Mutual funds may also be classified by their investment objectives, such as growth, value,
income, or international.
Mutual funds charge fees, such as management fees and operating expenses, which can impact the
overall return of the fund. It's important for investors to carefully review the fees and expenses
associated with a mutual fund before investing. Additionally, mutual funds may be subject to market
risk and other risks associated with the securities in the portfolio. Investors should carefully consider
their investment goals, risk tolerance, and other factors before investing in a mutual fund.

Venture capital
Venture capital is a type of private equity financing that is provided to early-stage companies with
high growth potential. Venture capital firms invest in startups and other emerging companies that have
a unique product or service, a strong management team, and a scalable business model. In exchange
for their investment, venture capital firms receive an ownership stake in the company and a seat on the
board of directors.
Venture capital firms typically invest in companies that are in the seed, early, or growth stages of
development. These companies may not have a proven track record of success or a significant revenue
stream, but they have the potential to disrupt an industry or create a new market. Venture capital firms
are often willing to take on riskier investments than traditional lenders, and they are willing to provide
funding in exchange for equity in the company.
Venture capital firms provide more than just funding to the companies they invest in. They also provide
strategic guidance, industry expertise, and access to their network of contacts. This can be invaluable
to startups that are looking to grow and scale their businesses.

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Venture capital investments are typically made in rounds, with each round providing additional
funding to the company as it reaches certain milestones. The first round of funding is typically the seed
round, which provides funding to help the company get off the ground. Subsequent rounds may be
called the series A, B, C, and so on, and they provide additional funding to help the company grow
and scale.
Venture capital firms typically exit their investments through an initial public offering (IPO) or through
a merger or acquisition. The goal is to provide a return on investment to the firm's investors, which
may include institutional investors, high net worth individuals, and family offices.

Credit rating
A credit rating is a measure of an individual's or company's creditworthiness. It is used by lenders to
determine the likelihood that a borrower will repay their debts on time. Credit ratings are assigned by
credit rating agencies, such as Standard & Poor's, Moody's, and Fitch Ratings, based on a variety of
factors, including the borrower's credit history, income, and debt-to-income ratio.
Credit ratings are typically expressed as a letter grade, ranging from AAA (the highest rating) to D
(the lowest rating). Borrowers with higher credit ratings are considered less risky and are more likely
to be approved for loans with favorable terms and lower interest rates. Borrowers with lower credit
ratings may have a harder time getting approved for loans and may be subject to higher interest rates
and fees.
Credit ratings are important for both individuals and companies. For individuals, a good credit rating
can help them get approved for loans, credit cards, and other financial products. For companies, a good
credit rating can help them raise capital, issue bonds, and negotiate favorable terms with suppliers and
customers.
It's important to monitor your credit rating regularly to make sure that there are no errors or
inaccuracies that could be negatively affecting your creditworthiness. You can obtain a free credit
report from each of the major credit reporting agencies once per year.

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