Modern Banking Management

1. Chapter 3: Financial Markets
A Financial Market is referred to space, where selling
and buying of financial assets and securities take
place. It allocates limited resources in the nation’s
economy. It serves as an agent between the investors
and collector by mobilizing capital between them.

2. What is Money Market?
Money Market is a financial market where short-term
financial assets having liquidity of one year or less are
traded on stock exchanges. The securities or trading
bills are highly liquid. Also, these facilitate the
participant’s short-term borrowing needs through
trading bills. The participants in this financial market
are usually banks, large institutional investors, and
individual investors.

3. Features of Money Market
It is market purely for short-term funds or financial
assets called near money.
2. It deals with financial assets having a maturity
period up to one year only.
3. It deals with only those assets which can be
converted into cash readily without loss and with
minimum transaction cost.

4. Defects of Money Market
1. Lack of Integration
2. Lack of rational Interest Rates Structure
3. Absence of an organized bill market
4. Shortage of funds in the Money Market
5. Seasonal stringency of funds and fluctuations in
interest rates
6. Inadequate banking facilities

5. What are Capital Markets?
A capital market is a place that allows the trading of
funding instruments such as shares, debentures, debt
instruments, bonds, ETFs, etc. It is a source for raising
funds for individuals, firms, and governments.

6. Features of Capital Market
1. Bring together borrowers and lender.
2. Deals in Long Term Investment.
3. Regulated by Government.
4. Utilizes Intermediaries.
5. Determine capital formation rate.
6. Provides liquidity.
7. includes primary market and secondary market.

7. Defects of capital market
1. Capital market investment is very risky because
of its very volatile at the time of price variations.
2. As the capital market is very fluctuating in terms
of price, investment won’t give you fixed income.
3. As the capital market provides a wide range of
investment which creates confusion for investors
and makes it difficult to invest without
professional advice.
4. Purchasing and selling of capital market
securities includes some brokerage fees or
commissions etc. which eventually increases the
cost of transactions.

8. State Bank of India
SBI acts as an agent to the RBI, where there are no
branches RBI available. Accordingly, there are many
functions which are rendered by the SBI. These are
Central Banking Functions
 Maintaining the currency
 Government’s bank
 Bank’s banker
 Acts as a clearinghouse
 Maintaining the currency

9. General Banking Functions
 SBI gives the facility of drawings, accepting, and
buying and selling the bills of exchange.
 It also issues and circulates the letters of credit.
 SBI also invests in funds or any special kind of
security.
 The bank also acts as a trustee, executor, or
otherwise, based on the circumstances

10. Regional Rural Bank
As the Regional Rural Bank is a scheduled commercial bank,
it is primarily responsible for accepting deposits and
disbursing loans. The important functions of the RRBs are as
below:
1.Accepting deposits from members in current or savings
accounts. They can also be made in fixed or recurring
deposits.
2.Extending loans to the small and marginal farmers,
craftsmen and artisans, medium and small scale enterprises,
housing, local traders, renewable energy, etc. that need
development and financial assistance.

11. EXIM Bank
The major functions of the EXIM Bank include:
1. Financing exports and imports of goods and services from
India
2. Financing the import and export of goods and services
other countries as well.
3. Underwriting shares/ stocks/ debentures/ bonds of
companies that carry out foreign trade.
4. Financing the import and/ or export of machinery and
equipment's on lease or hire-purchase basis.

12. NABARD
1. To serve as an apex financing agency for the institutions
providing investment and production credit for promoting
various developmental activities in rural areas;
2. To take measures towards institution building for
improving absorptive capacity of the credit delivery system,
including monitoring, formulation of rehabilitation schemes,
restructuring of credit institutions and training of personnel;
3. To coordinate the rural financing activities of all
institutions engaged in developmental work at the field level
and liaison with the Government of India, the State
Governments, the Reserve Bank and other national level
institutions concerned with policy formulation;

13. Non Banking Financial Institution
 A non-banking financial institution (NBFI) or non-bank
financial company (NBFC) is a financial institution that
does not have a full banking license or is not supervised
by a national or international banking regulatory agency.
 NBFC facilitate bank-related financial services, such as
investment, risk pooling, contractual savings, and market
brokering. Examples of these include insurance firms,
pawn shops, cashier's check issuers, check cashing
locations, payday lending, currency exchanges, and
microloan organizations.
 Alan Greenspan has identified the role of NBFIs in
strengthening an economy, as they provide "multiple
alternatives to transform an economy's savings into
capital investment which act as backup facilities should
the primary form of intermediation fail.

14. Role of micro finance in financial
inclusion
 Less than half the population in India has access to any
formal financial instrument.
 financial inclusion assumes greater importance with each
passing day.
 Previous work and initiatives in promoting financial
inclusion have mostly focused on the process, that is, how
to make banking costs lower.
 such efforts have seldom yielded much. The institutions
relied upon have their own problems. On the other hand,
microfinance institutions (MFIs), given their widespread
reach, can play a crucial role.
 MFIs are often in direct competition with formal
banking.

15. Globalization vs. financial markets
1) Globalization is the process of interaction
and integration among people, companies,
and governments worldwide.
A financial market is a market in which people
trade financial securities and derivatives at
low transaction costs. Some of the securities
include stocks and bonds, raw materials and
precious metals, which are known in the
financial markets as commodities.
This increase in global interactions has caused
a growth in international trade and the
exchange of ideas, beliefs, and culture.
facilitate the trade in financial securities, e.g., a
stock exchange or commodity exchange.
Globalization is primarily an economic process
of interaction and integration that is associated
with social and cultural aspects.
trading of stocks takes place on an exchange;
still, corporate actions are outside an
exchange, while any two companies or people,
for whatever reason, may agree to sell the
stock from the one to the other without using
an exchange.

16. Reasons for globalization of financial
markets
1) the globalization of financial markets include the more
rapid spreading of technological advances, financial
innovation as well as, more generally, financial
performance to the various parts of the globe.
2) In a global financial market, technological advances in
payment, settlement and trading systems as well as in
financial information systems can be made available to all
market participants instantaneously.
3) the new methods of calculation which they had
developed for measuring their market risk exposures as
well as, later, their credit risk exposures.
5) globalization of financial markets is the spreading of
financial innovation.

17. Benefits of globalization of financial
markets
1) A short description of the economic benefits associated
with the globalization of financial markets is proposed by
Obstfeld (1994), who writes that, "in theory, individuals gain
the opportunity to smooth consumption by borrowing or
diversifying abroad, while world savings are directed to the
world's most productive investment opportunities".
2) A practical implication of the theory is that globally
integrated financial markets provide more flexible ways of
both financing current account deficits and recycling current
account surpluses. Moreover, the free play of market
mechanisms should tend to ensure that both borrowers and
lenders do not knowingly take excessive risks.
3) Additional benefits from the globalization of financial
markets include the more rapid spreading of technological
advances, financial innovation as well as, more generally,
financial performance to the various parts of the globe.

18. Risks of globalization of financial markets
1) internationalization of financial markets, there have
been numerous occurrences of financial crises. Some of
these financial crises exerted disruptive and protracted
effects on the economy, both locally and globally.
2) the risks to financial stability may be seen as mainly
arising from market inefficiencies.
3) Co-ordination problems would seem to occur mainly in
the form of principal- agent problems affecting the
relationship between borrowers and lenders because of
information asymmetries or information verification
problems.

19. References
https://www.investopedia.com/articles/investing/05231
3/financial-markets-capital-vs-money-markets.asp
https://www.rrbcdg.gov.in/
https://www.nabard.org/
https://www.onlinesbi.com/
https://www.eximin.net/

https://www.yourarticlelibrary.com/banking/important-
methods-adapted-by-rbi-to-control-credit-
creation/23490