1. FINANCIAL MARKET Prof. (Dr.) Paresh Shah FCMA., Ph.D. (Finance)., F.D.P.(IIMA) Prof. (Dr.) Paresh Shah 1 Session– 1

2. INTRODUCTION Prof. (Dr.) Paresh Shah 2 System stands for a set of bodily organs like composition or concurring in function, a scheme of classification and a method of organisation. Finance holds the key to all human activities. Finance is the study of money – its nature, creation, behaviour, regulation and administration.

3. FINANCIAL SYSTEM Prof. (Dr.) Paresh Shah 3 A set of inter-related activities or services working together to achieve some predetermined purpose or goals. Includes indifferent markets, institutions, instruments, services and mechanism which influence the generation of savings, investment, capital formation and growth.

4. FINANCIAL SYSTEM Prof. (Dr.) Paresh Shah 4 Van Horne : the purpose of financial markets to allocate savings efficiently in an economy to ultimate users either for investment in real assets or for consumption. Robinson: To provide a link between savings and investment for the creation of new wealth and to permit portfolio adjustment in the composition of the existing wealth.

5. FUNCTIONS Prof. (Dr.) Paresh Shah 5 Mobilisation of savings Distribution for industrial investment Stimulating capital formation THE VERY OBJECTIVE IS ECONOMIC GROWTH.

6. PROCESS Prof. (Dr.) Paresh Shah 6 The process of savings, finance, and investment involves financial institutions, markets, instruments and services. Supervision, control and regulation are equally significant. FINANCIAL MANAGEMENT IS AN INTEGRAL PART OF THE FINANCIAL SYSTEM.

7. Prof. (Dr.) Paresh Shah 7 ECONOMIC GROWTH GOAL FINANCIAL MARKETS SYSTEMFINANCIAL SYSTEM FINANCIAL INSTITUTI - ONS FINANCIAL INSTRUM - ENTS FINANCIAL SERVICES SEGMENTS OF THE ECONOMY

8. FINANCIAL ASSETS AND INTERMEDIARIES Prof. (Dr.) Paresh Shah 8 Financial assets with attractive yield, liquidity, and risk characteristics encourage savings in financial form. By evaluating alternative investments and monitoring the activities of borrowers, financial intermediaries increase the effciency of resource use. The efficient use of resources, saving and risk taking are the corner stones of a growing economy.

9. CURRENCY CRISIS Prof. (Dr.) Paresh Shah 9 A FOREIGN EXCHANGE OR CURRENCY CRISIS occurs when a speculative attack on a country’s currency results in a devaluation or sharp depreciation or forces the central bank to defend the currency by selling large amounts of reserves or by significantly raising interest rates.

10. BANKING CRISIS Prof. (Dr.) Paresh Shah 10 Occurs when actual or potential bank runs, or failures, induce banks to suspend the internal convertibility of their liabilities or force the government to intervene to prevent this by providing banks with large-scale financial support.

11. DEBT CRISIS Prof. (Dr.) Paresh Shah 11 Occurs either when a borrower defaults or when lenders believe default is likely and therefore withhold new loans and try to liquidate existing ones. Debt crisis can be associated with either commercial or private or sovereign or public debt.

12. USERS OF FIANCIAL SERVICES Prof. (Dr.) Paresh Shah 12 House hold sector viz., unregulated firms and individuals. The seek convenience, liquidity, and security. Businesses – complicated needs. Needs short term credit to finance inventories and long term funds to finance capital expansion. Government – use payment services, net borrowers

13. PROVIDERS OF FINANCIAL SERVICES Prof. (Dr.) Paresh Shah 13 FROM SAVINGS SIDE: Financial institutions Deposit institutions Contractual savings institutions Collective investment institutions FROM LENDING SIDE: Commercial banks Universal banking Factoring

14. Prof. (Dr.) Paresh Shah 14 Structure of Financial Institutions in India CommercialCo – operative Other Banks Societies Institutions

15. Commercial Banks Prof. (Dr.) Paresh Shah 15 Public Sector State Bank of India Associate Banks Nationalised Banks 14 Major Banks Nationalised on 19 th July, 1969 6 Banks Nationalised on 15 th April, 1980 Regional Rural Banks

16. Commercial Banks Prof. (Dr.) Paresh Shah 16 Private Sector Foreign Banks in India Other Indian Banks Non – Scheduled Banks

17. Co – Operative Societies Prof. (Dr.) Paresh Shah 17 Central Co – Operative Banks State Co – Operative Banks Primary Agriculture Credit Societies Farmers Services Societies Central Land Development Banks State Land Development Banks PLDBs

18. Other Institutions Prof. (Dr.) Paresh Shah 18 Government National Savings Corporation Post Office Savings Bank Employees Provident Fund

19. Other Institutions Prof. (Dr.) Paresh Shah 19 Public Sector LICGIC UTIDICGC ECGCExim Bank ICICI BankIDBI IFCIIRBI NABARDSFCs SIDCsAFC SIDBISEBI STCIIIDB

20. Other Institutions Prof. (Dr.) Paresh Shah 20 Private Sector Chits Nidhis Corporate Bodies Hire Purchase Companies Investment Companies Merchant Bank Divisions Leading Companies Stock Exchange Finance Companies Credit Rating Agencies Depositories

21. Prof. (Dr.) Paresh Shah 21 Rural Financial System ProvidersUsers RBINABARDFarmers Co – Operatives Cottage Industries BanksArtisans RRB’s Individuals AFC Processing Industries

22. Prof. (Dr.) Paresh Shah 22 RBI Discount & Money Market Brokers & Stock & Finance House (Banks & FIs) Intermediaries Capital Market NearShort TermShort to Long CashMoney Assets FundsTerm Money Long Term Govt. Securities Funds Gilt-edged Market ReadyOvernight upFew Days From Few to Few Months Moneyto 15 daysto a few Many Years -- to few months Short, Mediumyears Long Term MONEY AND STOCK MARKETS

23. Prof. (Dr.) Paresh Shah 23 Creation of Thrift and Transfer Exchange Financial Money saving of Funds Services LendingInvestmentCapital Entrepreneurship formation AgricultureIndustryTradeServicesConsumption Employment IncomeEnvironmentalInstitutional GenerationDevelopmentBuilding RuralPovertySocialImprovement DevelopmentAlleviationGrowthof Standard of Living Socio – Economic Growth SCHEMATIC PRESENTATION OF THE FINANCIAL SYSTEM

24. MONEY market Prof. (Dr.) Paresh Shah 24 Ensures efficient functioning of the financial system and provides increased flexibility in banks operation. J.S.G. Wilson : a centre in which financial institutions congregate for the purpose of dealing impersonally in monetary assets. Short term funds are lent and borrowed.

25. MONEY MARKET COMPONENTS Prof. (Dr.) Paresh Shah 25 Two components Call money market – where day to day surplus funds, mostly of banks, is traded in. Bill market – RBI made advances to scheduled commercial banks in the form of demand loans against their promissory notes. To reduce reliance on cash credit arrangement.

26. Money Market Instruments Prof. (Dr.) Paresh Shah 26 Treasury bill Short-term borrowings of the government 14-day treasury bill The auction of 14-day treasury bills are held on a weekly basis Cater to the needs of investing the surplus funds of state government, foreign central bank, etc. 91-day treasury bills 182-day treasury bills 364-day treasury bills

27. Money Market Instruments Prof. (Dr.) Paresh Shah 27 Commercial bills Inter bank call money Commercial paper Certificate of deposit Repurchase option

28. CAPITAL Market Prof. (Dr.) Paresh Shah 28 Productive capital raised and made available for industrial purposes. Developed capital market solved the problem of paucity of funds. Facilitates increase in production and productivity in the economy Enhances economic welfare of the society.