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FINANCIAL MARKETProf. (Dr.) Paresh Shah
FCMA., Ph.D. (Finance)., F.D.P.(IIMA)
Prof. (Dr.) Paresh Shah1
Session– 1
INTRODUCTION
Prof. (Dr.) Paresh Shah2
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.
FINANCIAL SYSTEM
Prof. (Dr.) Paresh Shah3
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.
FINANCIAL SYSTEM
Prof. (Dr.) Paresh Shah4
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.
FUNCTIONS
Prof. (Dr.) Paresh Shah5
Mobilisation of savingsDistribution for industrial investmentStimulating capital formationTHE VERY OBJECTIVE IS ECONOMIC
GROWTH.
PROCESS
Prof. (Dr.) Paresh Shah6
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.
Prof. (Dr.) Paresh Shah7
ECONOMIC GROWTH GOAL
FINANCIAL MARKETS
SYSTEMFINANCIAL SYSTEM
FINANCIAL INSTITUTI -ONS
FINANCIAL INSTRUM -ENTS
FINANCIAL SERVICES
SEGMENTS OF THE ECONOMY
FINANCIAL ASSETS AND INTERMEDIARIES
Prof. (Dr.) Paresh Shah8
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.
CURRENCY CRISIS
Prof. (Dr.) Paresh Shah9
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.
BANKING CRISIS
Prof. (Dr.) Paresh Shah10
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.
DEBT CRISIS
Prof. (Dr.) Paresh Shah11
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.
USERS OF FIANCIAL SERVICES
Prof. (Dr.) Paresh Shah12
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
PROVIDERS OF FINANCIAL SERVICES
Prof. (Dr.) Paresh Shah13
FROM SAVINGS SIDE:Financial institutionsDeposit institutionsContractual savings institutionsCollective investment institutions
FROM LENDING SIDE:Commercial banks Universal bankingFactoring
Prof. (Dr.) Paresh Shah14
Structure of Financial Institutions in India
Commercial Co – operative OtherBanks Societies Institutions
Commercial Banks
Prof. (Dr.) Paresh Shah15
Public SectorState Bank of IndiaAssociate BanksNationalised Banks
14 Major Banks Nationalised on 19th July, 1969 6 Banks Nationalised on 15th April, 1980
Regional Rural Banks
Commercial Banks
Prof. (Dr.) Paresh Shah16
Private SectorForeign Banks in IndiaOther Indian BanksNon – Scheduled Banks
Co – Operative Societies
Prof. (Dr.) Paresh Shah17
Central Co – Operative Banks State Co – Operative Banks
Primary Agriculture Credit Societies Farmers Services Societies
Central Land Development Banks State Land Development Banks
PLDBs
Other Institutions
Prof. (Dr.) Paresh Shah18
GovernmentNational Savings CorporationPost Office Savings BankEmployees Provident Fund
Other Institutions
Prof. (Dr.) Paresh Shah19
Public SectorLIC GICUTI DICGCECGC Exim BankICICI Bank IDBIIFCI IRBINABARD SFCsSIDCs AFCSIDBI SEBISTCI IIDB
Other Institutions
Prof. (Dr.) Paresh Shah20
Private SectorChitsNidhisCorporate BodiesHire Purchase CompaniesInvestment CompaniesMerchant Bank DivisionsLeading CompaniesStock ExchangeFinance CompaniesCredit Rating AgenciesDepositories
Prof. (Dr.) Paresh Shah21
Rural Financial System
Providers Users
RBI NABARD Farmers
Co – Operatives Cottage Industries
Banks Artisans
RRB’s Individuals
AFC Processing Industries
Prof. (Dr.) Paresh Shah22
RBI Discount & Money Market Brokers & Stock &Finance House (Banks & FIs) Intermediaries Capital
Market
Near Short Term Short to LongCash Money Assets Funds Term Money Long
TermGovt. Securities FundsGilt-edged Market
Ready Overnight up Few Days From Few to Few Months
Money to 15 days to a few Many Years -- to fewmonths Short, Mediumyears
Long TermMONEY AND STOCK MARKETS
Prof. (Dr.) Paresh Shah23
Creation of Thrift and Transfer Exchange FinancialMoney saving of Funds Services
Lending Investment Capital Entrepreneurshipformation
Agriculture Industry Trade Services Consumption
Employment Income Environmental InstitutionalGeneration Development Building
Rural Poverty Social ImprovementDevelopment Alleviation Growth of Standard of
Living
Socio – Economic GrowthSCHEMATIC PRESENTATION OF THE FINANCIAL SYSTEM
MONEY market
Prof. (Dr.) Paresh Shah24
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.
MONEY MARKET COMPONENTS
Prof. (Dr.) Paresh Shah25
Two componentsCall 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.
Money Market Instruments
Prof. (Dr.) Paresh Shah26
Treasury billShort-term borrowings of the government14-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 bills182-day treasury bills364-day treasury bills
Money Market Instruments
Prof. (Dr.) Paresh Shah27
Commercial billsInter bank call moneyCommercial paperCertificate of depositRepurchase option
CAPITAL Market
Prof. (Dr.) Paresh Shah28
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.