1. Trade Finance Financial Markets & Role of Banks in Financial Sector

2. Agenda In this session, you will learn about: Financial System Constituents of Financial System Role of Commercial banks in economic development

3. Financial System

4. What is a Financial System? What is a financial system? Q

5. Components of a Financial System A Financial System is a system that brings together Financial Participants, Markets, Products, and Services. PARTICIPANTS MARKETSPRODUCTSSERVICES FINANCIAL SYSTEM

6. Goal of Financial System GOAL The primary goal of a financial system is accelerated growth of an economy.

7. Objectives of Financial System Saving Mobilization National GrowthInvestments

8. Prices in a Financial Market MARKET DEMAND MARKET SUPPLY Prices External Socio- Political Factors

9. Functions of Financial System Functions of a Financial System Facilitate the flow of funds to finance investments Play the role of intermediaries to determine the flow of funds Monitor and regulate the participants in the financial system

10. How Financial System Works? Borrowers Spenders Households Business firms Governments Foreigners Financial markets Indirect Finance Direct Finance Funds Financial Intermediaries Lenders Savers Households Business Governments Foreigners Funds

11. Financial System Structure of the Modern Financial System Financial Market Financial Instruments Financial Participants Financial Regulator Financial Services

12. Participants of the Financial System ONES WITH SURPLUS FUNDS ONES WITH DEFICIT FUNDS Invest in assets to gain more profit Sell assets to get financing Sell Side Buy Side Financial System

13. Financial Market A market where financial instruments are traded in order to raise capital.

14. What is Financial Market? A market where investors and borrowers can trade in financial securities, commodities and other financial instruments at prices that reflect the market demand and supply. Investor Shares Cash FINANCIAL MARKET Company

15. Financial Market Long Term Capital Medium Term Capital Short Term Capital Financial Market The market for such securities could be short term, medium term or long term capital. Role of Facilitator

16. Functions of Financial Market Financial markets have five major economic functions: Price DiscoveryLiquidity Reduction of Transaction Costs Regulating Intermediaries Settlement of Transactions

17. Types of Financial Markets Quote Driven Market Order Driven Market Capital Market Money Market Primary Market Secondary Market

18. Instruments Offered In Financial Markets Financial Instruments Bonds Derivatives Stocks Foreign exchange Commodities 17

19. Instruments Offered In Financial Markets Financial Instruments Government Securities Debentures Money Market Instruments Insurance And Pension 18

20. Financial Instruments Stocks  Includes examples such as equity shares Bonds  Fixed Income Instruments which provides a coupon as income Insurance And Pension  Protection for short term and long term investments Government Securities  Securities issued by the Government for various purposes (Municipal bonds, T-Bills) Debentures  : Bonds which are unsecured are known as Debentures

21. Financial Instruments Foreign Exchange  Foreign Exchange: Exchange of one currency for another using an exchange rate Derivatives  Instruments which derive their value from an underlyer. Money Market Instruments  Short term instruments which have maturities less than a year. E.g. T-Bills Repo, Certificate of Deposit, Commercial Papers Commodities  Can be traded directly or using derivative products.

22. Market Making Asset Management Specialized Financial Solutions Mergers & Acquisition Research & Advise Sales & Trading Financial Services Underwriting

23. Financial Services Mergers and Acquisitions  Equity valuation of a company, research on the sector, target companies, when to pay, how much to pay, how to pay etc Research and Advice  Provide specialized market research reports on the trends and views of the market (not just equity, but global underlyers) Underwriting  Provide a guarantee that a company will be able to raise the capital from the public

24. Financial Services Sales & Trading  Create structured products per client requirements Market Making  Publish prices in the market to entice the other participants to trade against them, which in turn increases liquidity Asset Management  Manage the assets of global clients and allow them to trade and invest in all the large financial centres of the world

25. Importance of Financial System FINANCIAL MARKETS 2010 Vital to the functioning of the industry as the instruments help raise long term capital. $ 1643 Trillion

26. Role of Commercial banks in Economic Development

27. Capital Formation Capital Formation is the process of building capital stock of a country by Investing in productive plants and equipment's. In other words capital formation is increasing of capital assets by efficient use of existing resources of the country.  Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income. Increasing an economy's capital stock also increases its capacity for production, which means an economy can produce more. Producing more goods and services can lead to an increase in national income levels.  The banks are, therefore, not only the store houses of the country’s wealth, but also provide financial resources necessary for economic development.  Banks are swiftly able to mobilise the funds from Surplus to Deficit creating value and in the process increasing capital

28. Promotion of Trade and Industry  With the growth of commercial banking, there is vast expansion in trade and industry.  The use of bank draft, check, bill of exchange, credit cards and letters of credit etc. has revolutionized both national and international trade.  Acting as lenders, the banks offer start- up loans and financing for capital equipment purchases.

29. Influencing Economic Activity  The banks can also influence the economic activity of the country through its influence on: a. Availability of credit b. The rate of interest  If the commercial banks are able to increase the amount of money in circulation through credit creation or by lowering the rate of interest, it directly affects economic development.  Development banks set up as a term lending institution not only provide funds but also provide advisory, promotional and entrepreneurial services.

30. Development of Agriculture  A large number of formal institutional agencies like Co-operative banks, Regional Rural Banks (RRB), Scheduled Commercial Banks, Non Banking Financial Institutions (NBFI) and Self help groups (SHG’s) etc. are involved in meeting short term and long term needs of the farmers.  Several others initiatives have been taken to strengthen the institutional mechanism of rural credit.  The provision of credit to agriculture sector has greatly helped in raising agriculture productivity and income of the farmers.

31. Monetisation by Support to Rural Areas  An underdeveloped economy is characterized by the existence of a large non- monetized sector, particularly, in the backward and inaccessible areas of the country. The existence of this non monetized sector is a hindrance in the economic development of the country.  The banks, by opening branches in rural and backward areas, can promote the process of monetisation in the economy

32. Implementation of Monetary Policy  Monetary policy refers to actions taken by central banks to affect monetary and financial conditions with the aim of achieving the broader macro- economic policy objectives of low inflation and sustainable economic growth.  The central bank of the country controls and regulates volume of credit through the active cooperation of the banking system in the country.  It helps in bringing price stability and promotes economic growth with in the shortest possible period of time.

33. Role of Commercial Banks in 21st Century

34. Role of Commercial Banks in 21 st Century  The commercial banks are now not confined just to local banking.  They are fast changing into global banking i.e., understanding the global customer, using latest information technology, competing in the open market with high technology system, changing from domestic retail banking to investment banking etc.  The commercial bank are now considered the nerve system of all economic development in the country.  The advent of Direct Banking Channels and Virtual banking has made a huge difference with customers being able to transact at the click of a button.

35. Role of Commercial Banks in 21 st Century Today’s commercial banking is characterised by three basic characters: Deposits, Credit cards, Insurance, Investments and Securities Multiple Products Call centres, Branch banking, online marketing, Channel partners etc. Multiple channels of distribution Consumer, Small and Medium scale, corporate banking, Personal banking, Preferred banking, NRI Services Multiple customer groups

36. Q A & Thank You For Your Attention