Introduction to Financial System

ByDr. Gurendra Nath Bhardwaj

Associate ProfessorIILM, Graduate School of Management,

Greater Noida.Email: gurendra.bhardwaj@iilmgsm.ac.in

Issues for discussion

• Difference between Money Market & Capital Market

• Effect of Monetary Policy on Money Market

• Legal aspects of Money & Capital Market

Agenda

An attempt to get answers of-

What are the various components of a Financial

System?What are contemporary issues of Financial

System?

A financial System may be defined as a set of-

InstitutionsInstruments & Markets

Which foster saving & channels them to their most

efficient use.

Well developed financial markets are required for

creating a balanced financial system in which

both financial markets and other financial

institutions play important role.

Markets, Institutions & instruments are the

prime movers of economic growth

-Prof. Olsons

• A financial market consists of investors or

buyers, sellers, dealers and brokers and does

not refer to a physical location.

• The participants in the market are linked by

formal trading rules and communication

networks for originating and trading financial

securities.

Functions of Financial Market

• Facilitate transfer of funds from surplus sector

(Lenders) to deficit sectors (borrowers).

• Make market operations be free, fair,

competitive and transparent.

Important functions of financial markets are-

Price discovery process, which results from the

inter-action of buyers & sellers in the market when

they trade assets.Provision of liquidity by providing a mechanism

for an investor to sell financial assets.Low cost transactions & informations.

Types of markets

Money Market

Capital Market

Capital Market

Capital market consists of -

Primary MarketSecondary Market

Primary Market

• It deals with the issue of new instruments by

the corporate sector.

• The major player in the primary markets are

the merchant/ Investment banker, mutual

funds, financial institutions, foreign

institutional investors and individual

investors.

Secondary Market

• It provides continuous market for the securities

already issued to be bought & sold in volume

with little variation in the current market prices.

• The players in the secondary market are the

brokers, the mutual funds, financial institutions,

foreign institutional investors and individual

investors.

With a view to protect investor's interest and

orderly development of capital market,

Securities & Exchange Board (SEBI), regulates

the capital market and intermediaries.

Thanks