For Videos use the links below 0 Course Introduction:: https://www.youtube.com/watch?v=9km4aXTus5c 1 Financial system and Environment : https://www.youtube.com/watch?v=BC2bAftm43c 2 Participants in a Financial System: https://www.youtube.com/watch?v=IEv_y7_aR7o 3 Functions of a Financial System: https://www.youtube.com/watch?v=T73-Dd8RM4I 4 Financial System and its components: https://www.youtube.com/watch?v=ovkAjEO8YAw 5 Efficiency of a financial system: https://www.youtube.com/watch?v=8xEUtvKYvPc

1. Raju Indukoori

2. Raju Indukoori
Financial System
It is the systematic function of financial units or
acts including monetary transactions related to
lending, borrowing, saving and investing that
arise due to demand for and supply of capital
activities on a continuous basis in an economy.
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3. Raju Indukoori
Need and Importance
 Demand for capital
 Surplus capital
 Bridging the gap between demand and supply
 Financial planning and policy making
 Safety and security
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4. Participants in a Financial System
Savers (Surplus)
1. House holds
(more)
2. Business organizations
(less)
3. Governments
(less)
4. Financial Organizations
(more)
Borrowers (Deficit)
1. House holds
(less)
2. Business organizations
(more)
3. Governments
(more)
4. Financial Organizations
(more)
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5. Participants in a Financial System
The net providers (savers) & users (borrowers) of capital
 Households: Net savers.
 Non-financial corporations: Net users (borrowers).
 Governments: Net borrowers.
 Financial corporations: Slightly net borrowers, but
almost breakeven.
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6. Raju Indukoori
Functions of Financial System
 Bridge the gap between demand and supply
 Facilitates Savings, Investments and Borrowings
 Transfer of capital from savers to borrower
 Provide payment and settlement system
 Safety and Security
 Regulate market participants.
 Protect the interest of investors and borrowers
 Monitor corporate performance
 Provide Transparency
 Disseminate price related information
 Easy access at free of cost
 Make financial instruments traded
 Enhance marketability
 Provide liquidity
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7. Functions of Financial System
Capital Transfer in a financial system (from savers to borrowers)
 Direct Transfer
Ex: Corporation issues commercial paper to insurance company).
 Indirect Transfer
 Through an merchant bank/investment banking house:
Ex: IPO, seasoned equity offering, or debt placement).
 Through a financial intermediary:
Ex: individual deposits money in bank, bank makes commercial loan to a
company).
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8. Raju Indukoori
Features of a Good financial System
 Strong legal and regulatory environment
 Active role of central bank
 Effective and productive Public finances / public debt management
 Stable internal and external value of money
 Information system and transparency
 Efficient markets
 Technology driven
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9. Raju Indukoori
Structure of a Financial System
The components in the financial system are
 Interdependent
 Interactive
 Closely associated
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10. Raju Indukoori
Types of a Financial System
1) Banks oriented
2) Market oriented
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11. Raju Indukoori
Components of a Financial System
1. Financial Services
2. Financial Instruments
3. Financial Institutions
4. Financial Intermediaries
5. Financial Markets
6. Financial Regulators
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12. 1.Financial Services
Fee Based / Advisory Services
1. Stock broking
2. Credit rating
3. Corporate services
4. Capital Market Services
5. Portfolio Management Services
6. Underwriting
7. Custodial services
8. Investment Advisory
Asset / Fund based Services
1. Bills Discounting
2. Consultants
3. Factoring
4. Forfeiting
5. Housing finance
6. Hire Purchase
7. Venture capital funding
8. Insurance
9. Leasing
10. Consumer Credit
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13. 2. Financial Instruments
Term /
Market
Debt Equity Derivatives
ST
Money
Market
• Treasury Bills (T-Bills)
• Certificate of Deposits (CD’s)
• Commercial Papers
•Options
• Futures
• Forwards
LT
Capital
Market
• Government Bonds
• Corporate Bonds
• Corporate Debentures
• Convertible Bonds
•Common Stock
•Preferred Stock
•Hybrid Instruments
• LEAPS
• Swaps
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14. Raju Indukoori
FINANCIAL INSTRUMENTS
LONG TERM - Equity
 Equity
 Common Shares
 Preferential Shares
 Foreign Equity: ADRs
 Euro Equity : GDRs
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15. Raju Indukoori
FINANCIAL INSTRUMENTS
LONG TERM - Debt
 Government Securities
 Corporate Securities
 Foreign Bonds : Issued by foreign Govt / High rated companies
 Yankee Bonds :In US by Non US Entities
 Samurai Bonds : In Japan by Non Japanese Entity
 Bulldog Bonds : In UK by Non British Entities
 Shibosai Bonds : Private placement in Japan
 Euro Bonds: Dollar, Yen and Pound Bonds
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16. Raju Indukoori
FINANCIAL INSTRUMENTS
LONG TERM - Hybrid
 Convertible Bonds
 Convertible Preferential Shares
 Warrants
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17. Raju Indukoori
FINANCIAL INSTRUMENTS
LONG TERM - Hybrid
 Convertible Bonds
 Convertible Preferential Shares
 Warrants
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18. A. Banks
 Development Banks
 Commercial Banks
 Co operative Banks
B. Non Banking Financial Corporations (NBFCs)
C. Institutional Investors
 Domestic : Mutual funds, Insurance Companies, Trusts
 Foreign Portfolio Investors (FPIs)
D. Exchanges
 Equity Exchanges
 Debt securities exchanges
 Derivatives Exchanges
E. Depository Participants (DPs)
F. Clearing Corporations (CCs)
G. Credit rating agencies
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19. a. Development banks
◦ Industrial Development Bank of India (IDBI)
◦ Small Industries Development Bank of India (SIDBI)
◦ Infrastructure Development Finance Company Ltd (IDFC)
◦ Industrial Finance Corporation of India (IFCI)
◦ National Bank for Agriculture and Rural Development (NABARD)
◦ Industrial Investment Bank of India (IIBI)
◦ Export – Import Bank of India (EXIM)
◦ State Finance Corporation (SFC)
◦ State Industrial Development Corporation (SIDC)
◦ Export Credit Guarantee Corporation (ECGC)
◦ Deposit Insurance and Credit Guarantee Corporation (DICGC)
b. Commercial banks
◦ Public sector
◦ Private sector : Indian and Foreign collaboration
c. Others
◦ Co operative banks
◦ Regional Rural Banks (RRBs)
◦ Cooperative Urban Banks
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20.  Loan companies
 Housing finance
 Discount and Finance House of India Limited(DFHIL)
 Mutual benefit companies
 Financing Companies: Term loans, Hire Purchase,
Leasing
 Chit funds
 Investment companies: Venture capital funds, Private
equity companies
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21.  Domestic Institutional Investors
◦ Insurance Companies
◦ Asset Management Companies (Mutual funds)
◦ Venture capital funds
◦ Private equity companies
◦ Pension fund companies
 Foreign Portfolio Investors
◦ Hedge funds
◦ Participatory notes
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22.  Securities
◦ BSE : Bombay Stock Exchange
◦ NSE : National Stock Exchange
◦ OTCEI : Overt The Counter Exchange of India
◦ RSE : Regional Stock Exchanges
 Commodities
◦ NMCE : National Multi Commodities Exchange
◦ MCX : Multi Commodities Exchange
◦ NCDEX: National Commodities and Derivatives Exchange
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23.  NSDL : National Securities Depository Limited
 CDSL : Central Depository Services Limited
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24.  National Securities Clearing Corporation Ltd
(NSCCL)
 Bank of India Securities Limited (BOISL)
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25.  Credit Rating and Information Services of
India Limited (CRISIL)
 Investment Information and Credit Rating
Agency of India Limited (ICRA)
 Credit Analysis and Research (CARE) Limited
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26. Raju Indukoori
4.FINANCIAL INTERMEDIARIES
 Product or service ownership
 Fully owned : Banking, insurance, mutual fund, leasing, loans,
 Partially owned or in joint venture or collaboration
 Product facilitators
 Brokers : Stock Exchange
 Dealers : Forex market
 Members : Derivatives
 Commission oriented
 Personal Agents: Life insurance, Public Issues
 Direct Selling agents / Net work marketing: Ponzi Schemes
 Distributors: Mutual funds, corporate deposits
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27. Raju Indukoori
4.FINANCIAL INTERMEDIARIES
 Banks
 Commercial Banking
 Corporate banking
 Retail banking
 Rural banking
 Offshore banking
 Cross Selling
 Lead Banking
 Merchant banking
 Mutual funds
 Insurance firms
 Foreign exchange Dealers
 Consultants
 Investment Bankers
 Under writers
 Merchant Bankers
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28. 5. Financial market
It is a platform and a method of exchanging
one asset (usually cash) for another asset
(financial asset).
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29. Types of Financial Markets
 Market for Physical and financial assets
 Spot and future markets
 Money and capital markets
 Primary and secondary markets
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30. Raju Indukoori
Types of Financial Markets
1. Capital Market
2. Money Market
3. Derivatives Market
4. Commodities Market
5. Forex Market
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31. • Securities Exchange Board of India (SEBI)
• Primary market
• Secondary market
• Mutual funds
• Reserve Bank of India (RBI)
• Banking
• Monetary policy
• Foreign Exchange
• Department of Economic Affairs (DEA)
• Department of Company Affairs (DCA)
• Insurance Regulatory and Development Authority (IRDA)
• Registrar of Companies (ROC)
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33.  Unorganized Sector
 Organized Sector

34.  Demand oriented
 Big in size
 Active
 Spread over in villages, towns & cities
 More of retail than institutional
Participants

35. Lenders
 Indigenous bankers
 Loan sharks
 Micro Financiers
Borrowers
 Agricultural farmers
 Daily wage workers
 Industrial workers
Participants

36.  Bank Oriented earlier
 Transformation into Market Oriented

37.  Moved from bank oriented to market oriented.
 Moved from fixed exchange to market determined
exchange rate
 Foreign investments participation
 Technology driven transparent markets
 Tight regulation and corporate governance
 New regulatory bodies
 Innovative financial products

38. Global
Financial Environment

39. Raju Indukoori
Financial Institutions & Intermediaries
• Savings and loan associations
• Mutual savings banks
• Credit unions
• Life insurance companies
• Mutual funds
• Pension funds
• Underwriters
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40. Raju Indukoori
Commercial Banks
• JP Morgan Chase
• HSBC Holdings
• ABN AMRO
• BNP Paribas
• Bank of America
• HSBC
• Citigroup
• Credit Suisse
• Deutsche Bank
• ING
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41. Raju Indukoori
Investment Banks
• Bank of America Meryl Lynch
• Goldman Sachs
• Morgan Stanley
• Citi Group
• JP Morgan
• UBS
• Credit Suisse First Boston
• Dean Witter
• Deutsche bank
• Chase Manhattan
• Barclays
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42. Raju Indukoori
Credit Rating Agencies
• Moody’s Investor Service
• Standard & Poors
• Fitch Ratings
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43. Raju Indukoori
Thank You
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44. Raju Indukoori
Any Questions
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