FINANCIAL SYSTEM
The financial system of any country comprises of the following components:
1)Financial institutions
2) Financial instruments
3) Financial Markets
4) Financial Services
1) Financial Institutions
a)Regulatory Ex. RBI, SEBI, IRDA, PFRDA
b)Intermediaries:
It include Banking system and Non-banking financial institutions.
Banking system comprises the commercial banks and co-operative banks.
Non- Banking financial institutions are LIC, Unit trust of India(UTI) and IDBI.
2)Financial Instruments
It include Claims, Assets, Securities.
a)Claims:
The Financial asset represents a claim to the payment of sum money sometime in future(repayment of principal) a regular or irregular payment in form of interest or dividend.
b)Financial asset:
It includes bank deposit, government bond, industrial debenture, stocks and mutual funds.
c)Financial securities:
Fnancial securities are classified as primary(direct) and Secondary(indirect) securities.
The primary securities are issued by the ultimate investors directly to the ultimate savers. E.g. Ordinary shares and debentures.
While secondary securities are issued by the financial intermediaries to the ultimate savers. E.g. bank deposits, units, insurance policies.
3)Financial Markets:
Financial Markets are the centers in the financial system. They make arrangements/provide facilities for buying and selling of financial claims and services. The corporations, financial institutions, individuals and government trade in financial markets either directly through brokers and dealers. The participants in financial markets are financial institutions, agents, brokers, dealers, borrowers, lenders and savers.
Financial markets are sometimes classified as primary and secondary markets. Primary markets deal in the new financial claims called new issue markets. Whereas Secondary markets deal in security already issued or existing. Stock market have both the primary and secondary market segments.
Very often the financial markets are classified as money markets and capital markets.
Money markets deal in the short-term claims(period maturity of
one year or less).
E.g. Treasury bills market, call money and commercial bills market are examples of the money market.
Stocks markets and government bonds are the example of the capital market.
Equity market, debt market and derivatives market also the parts of capital market.
The capital markets deal in in the long- term(maturity period above 1 year) claims.
4)Financial Services
a) Banking Services
b)Stock Exchange Services
c) Insurance Services
d)Wealth Management Services
e) Investment Services
f) Portfolio Management Services
g)Tax/Audit Consultancy
h) Professional Consultancy/Advisory Services.
Written by...
S.M. Rachawad
At post Palaj.
Tq.Bhokar Dist.Nanded.
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