FINIANCIAL SYSTEM

DIV—B3Topic’s Covered

MeaningSignificanceComponentsComposition of financial SystemOrganization management functions

MEANING

Regional

Global

Firm

Lenders Borrowers

Significance

It serves as a link between savers and investorsIt provides a mechanism for the transfer of resourcesIt provides a mechanism for managing and controlling It assists in the selection of the projectsIt promotes the process of capital formationIt provides you detailed information to the operatorsreduce 654 Title B123

Component’s

Component’s

Composition of a Financial System

FINANCIAL ASSETS/INSTRUMENTS

Money Market Instruments

Capital Market Instruments

Hybrid Instruments

Call /Notice-Money Market

Inter-Bank Term Money

Treasury Bills

Commercial Paper

FINANCIAL INTERMEDIATION

Money Market- The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term instrument

Capital Market - The capital market is designed to finance the long-term investments

Forex Market - The Forex market deals with the multicurrency requirements, which are met by the exchange of currencies

•Credit Market- Credit market is a place where banks, FIs and NBFCs purvey short, medium and long-term loans to corporate and individuals

FINANCIAL MARKETS

RBI Organization and Management Function’s

RBI

Credit Creation

Primary deposits

Note issuing authority

Controller of

CreditThe Reserve Bank of India is the controller of credit

RBI has the power to influence the volume of credit

Controller of Credit Methods

RBI

RBI

Bank Rate Policy

Open Market Operation

Central bank controls the short term interest rate

CRR and SLRCash Reserve Ratio Statutory Liquidity Ratio

Lending Rate

The ratios fixed by RBI to lend the money to the customers

Repo Rate

Reverse Repo Rate

The standard rate at which the RBI is prepared to buy commercial papers

Monetary PolicyMoney supply

Interest rates

Inflation