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    CHAP 1 Overview

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    Ashley Geo
    This document provides an overview of the Indian financial system, including its key functions and components. It discusses the different financial markets in India, classifying them as either the money market (for short-term instruments) or the capital market (for long-term instruments). The money market is described in more detail, outlining various instruments like treasury bills, commercial paper, certificates of deposits, and money market mutual funds. The capital markets are involved in providing medium and large-scale industries with long-term funding for expansion, investments, and acquisitions. Both markets work to channel funds from savers to those needing capital for productive purposes.

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    CHAP 1 Overview

    Uploaded by

    Ashley Geo
    49 views14 pages
    This document provides an overview of the Indian financial system, including its key functions and components. It discusses the different financial markets in India, classifying them as either the money market (for short-term instruments) or the capital market (for long-term instruments). The money market is described in more detail, outlining various instruments like treasury bills, commercial paper, certificates of deposits, and money market mutual funds. The capital markets are involved in providing medium and large-scale industries with long-term funding for expansion, investments, and acquisitions. Both markets work to channel funds from savers to those needing capital for productive purposes.

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    This document provides an overview of the Indian financial system, including its key functions and components. It discusses the different financial markets in India, classifying them as either the money market (for short-term instruments) or the capital market (for long-term instruments). The money market is described in more detail, outlining various instruments like treasury bills, commercial paper, certificates of deposits, and money market mutual funds. The capital markets are involved in providing medium and large-scale industries with long-term funding for expansion, investments, and acquisitions. Both markets work to channel funds from savers to those needing capital for productive purposes.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    49 views14 pages

    CHAP 1 Overview

    Uploaded by

    Ashley Geo
    This document provides an overview of the Indian financial system, including its key functions and components. It discusses the different financial markets in India, classifying them as either the money market (for short-term instruments) or the capital market (for long-term instruments). The money market is described in more detail, outlining various instruments like treasury bills, commercial paper, certificates of deposits, and money market mutual funds. The capital markets are involved in providing medium and large-scale industries with long-term funding for expansion, investments, and acquisitions. Both markets work to channel funds from savers to those needing capital for productive purposes.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 14

    Indian

    Financial
    System

    Introduction
    Composition
    Functions
    Saving Function
    Liquidity Function
    Payment Function
    Risk Function
    Policy Function

    Financial Markets
    Defined as the market in which financial
    assets are created or transferred.

    These assets represent a claim to the


    payment of a sum of money sometime in the
    future and/or periodic payment in the form of
    interest or dividend.

    Classification
    Money market
    (Short term instrument)
    Capital markets
    (Long term instrument)

    The most important distinction between


    the two:
    The difference in the period of maturity.

    Money Market
    Main Function
    To channelize savings into short term productive
    investments like working capital .

    Instruments in Money Market


    Call money market
    Treasury bills market
    Markets for commercial paper
    Certificate of deposits
    Bills of Exchange
    Money market mutual funds
    Promissory Note

    Call Money Market


    Part of the national money market
    Day-to day surplus funds mainly of banks are traded
    Short term in nature
    Maturity of these loans vary from 1 to 15 days
    Lent for 1 day: Call money
    Lent for more than 1 day but less than 15 days: Notice
    money
    Convenient interest rate
    Highly liquid loan repayable on demand

    Commercial Papers
    Unsecured Promissory note.
    Issued by well known companies with strong and
    high credit rating.
    Sold directly by the issuers to investors or through
    agents like merchant banks and security houses.
    Flexible Maturity
    Low interest rates with compared to banks.
    Imparts a degree of financial stability to the system.

    Promissory Note
    Referred as note payable in accounting
    It is a contract detailing the terms of a
    promise by one party (the maker) to pay a
    sum of money to the other (the payee).
    The obligation may arise from the
    repayment of a loan or from another form
    of debt.
    For example, in the sale of a business, the
    purchase price might be a combination of
    an immediate cash payment and one or
    more promissory notes for the balance.

    Certificates of deposits
    Defined as short term deposit by way of
    usance promissory notes.
    Greater flexibility to investors in the
    deployment of surplus funds.
    Permitted by the RBI to banks
    Maturity of not less than 3 months and upto
    1 year.
    Transferable in nature
    Free negotiability and limited flexibility

    Money market mutual


    funds
    Invest primarily in money market instruments
    of very high quality.

    RBI and public financial institution can set it


    either directly or through its existing
    subsidiaries.

    MMMF
    Open Ended
    Close Ended

    Capital Markets
    Provided resources needed by medium and
    large scale industries.
    Purpose for these resources
    Expansion
    Capacity Expansion
    Investments
    Mergers and Acquisitions

    Deals in long term instruments and sources


    of funds

    Main Activity
    Functioning as an institutional
    mechanism to channelize funds from
    those who save to those who needed for
    productive purpose.
    Provides opportunities to various class
    of individuals and entities.

    Structure of Capital Markets


    Primary Markets

    Secondary Markets

    When companies need financial


    resources for its expansion, they
    borrow money from investors through
    issue of securities.

    The place where such securities are


    traded by these investors is known as
    the secondary market.

    Securities issued
    a)Preference Shares
    b)Equity Shares
    c)Debentures

    Securities like Preference Shares and


    Debentures cannot be traded in the
    secondary market.

    Equity shares is issued by the under


    Equity shares are tradable through a
    writers and merchant bankers on behalf private broker or a brokerage house.
    of the company.
    People who apply for these securities
    are:
    a)High networth individual
    b)Retail investors
    c)Employees
    d)Financial Institutions
    e)Mutual Fund Houses
    f)Banks

    Securities that are traded are traded by


    the retail investors.

    One time activity by the company.

    Helps in mobilising the funds for the


    investors in the short run.

    Thank-You

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