Finance Is A Bridge Between The Present & The Future

Finance is a bridge between the present & the future and whether it be the mobilisation Of saving or their efficient,effective and equitable allocation for investment. Financial System Savin g

Finance

Investment Capital Formation Economic Growth

The financial system is concerned about money ,credit and finance - the term intimately related yet somewhat different from each other. Money refers to the current medium of exchange or means of payment.Credit or a loan is a sum of money to be returned only with intrest.Finance is the monetary resources comprising debt and ownership funds.

FINANCIAL SYSTEM

Financial Institution

Financial Markets

Financial Instruments

Financial Services

(Claims,Assets,Secu rities) Primar y

Other s

Regulato ry Intermediari es

Bankin g

Non Intermediari es

Non Banking

Debt Markets

Short Term

Long Term Organis ed

UnOrganis ed

Primary

Secondar y

Capital Markets

Secondar y

Money Markets

Equity Markets

Drivative s Market

Medium Term

FINANCIAL INSTITUTIONS : As a bussiness organisation that act as mobilisers and depositories of savings and as purveyors of credit or finance.They also provide various financial services to the community.It can be divided into Regulatory,Intermediaries,Non-Intermediaries and that can be also divided into Banking & Non-Banking. INTERMEDIARIES & NON-INTERMEDIARIES : Intermediaries intermediate between savers and investors.They lend money as well as mobilise savings .Their libalities are towards the ultimate savers,while there assets are from the investors or borrowers .Non-Intermediary institution do the loan business but there resources are not directly obtained from the savers. BANKING & NON-BANKING : The banking institution have quite a few things in common with the non-banking. (a)They participate in the economics payment mechanism i.e they provide transaction services.

FINANCIAL MARKETS : Financial markets are the centre or arrangements that provides facilities for buying and selling of financial claims and services.The corporations financial institutions,individuals and governments trade in financial product on these markets either directly or through brokers & dealers. It can be divided as Primary & Secondary or Organised & Un-Organised. Organised & Un-Organised : The organised financial markets comprises of an impressive network of banks,other financial & investment institutions. On the other hand Un-Organised financial market comprises of relativaly less controlled money lenders indigenious bankers,landlord,traders etc. Financial markets are sometimes classified as primary and secondary market. The primary market deal in new financial claims or new securities. Secondary markets deal with securities already issued or existing or outstanding.

MONEY & CAPITAL MARKETS: Financial markets are classified as money and capital market. Money market deal in the short term themes and capital markets does show in the long term claims. Commercial banks belongs to both. Tragedy bills call money and commercial bills are money market. Stock market and governments bonds are capital market. Equity market, debt market and derivatives market are the part of capital market. 1). 2). 3). 4). 5).

Financial market are set to be perfect when: A large number of savers and investors operate in market. The savers and investors are rational. There are no transaction costs. The financial assets are infinitively devisable. There are no taxes.

FUNCTIONS OF FINANCIAL MARKETS: Financial markets perform the essential function of channeling, funs from household firm and government that have saved surplus fund by spending less than their income to those who have a storage of funds because they wish to spend more that their income. Well functioning financial market also directly improve the well beings of consumer by allowing them to time their purchase better. They provide funds to young people to buy what they need and can eventually afford without forcing them to wait until the saved up the entire purchase price.

FINANCIAL INSTRUMENTS AND SERVICES: Financial system deal in financial services and claims or financial assets or securities or financial instruments. These services and claims are many and varied in character this is so because of the diversity of motives behind borrowing and landing. FINANCIAL ASSETS: The financial assets represents a claims to the payment of a sum of money sometime in future or a periodic payment in the form of interest or dividend. FINANCIAL SECURITIES: Financial securities are classified as primary and secondary securities. The primary securities are issued by the ultimate investors directly to the ultimate savers as ordinary shares and debentures while the secondary securities are issued by the financial intermediaries to the ultimate savers as bank deposit insurance policies.

FINANCIAL INSTRUMENTS: Financial instruments differ from each other in respect of their investment characteristics which of course are independent and inter related among the investment characteristics of financial assets or financial products the following are important: 1). Liquidity 2). Marketability 3). Reversibility 4). Transaction costs so on.

REGULATORY FRAMEWORK FOR FINANCIAL SERVICES: The regulatory and supervisory infrastructure play a critical role in ensuring the health, soundness, stability of the financial system. The role of such infrastructure or arrangements has become all the greater with continuous and for reaching technological progress, liberalization and greater integration in financial market. This infrastructure lay down the specific rules or behavior for participants in the financial system. It provides for the monitoring of the observation of those rules. The financial regulation is regarded necessary because, in its absence economic costs imposed by financial market failure would be high indeed. At present, regulators in India are the government, reserve bank of India (RBI), securities and exchange board of India.

FINACIAL RISK: Financial risk is associated with the use of debt financing by firms or companies. Since the presence of debt involves the legal or mandatory obligations to made this specified payments at specified time period. There is a risk that the earnings of the firm may not be sufficient to meet these obligations towards the creditors. In case of share holders, the financial risk arises because of not only the mandatory natural of debt obligations but also the property of “prior payments of these obligations”. In short, the use of debt by the firm causes variability of return for both creditors and shareholders. Financial risk is usually measured by the debt/equity ratio of the firm; the higher this ratio, the greater the variability of return and higher the financial risk.