Financial System |
| Credit: Corporate Finance Institute |
WHAT IS A FINANCIAL SYSTEM
A Financial System is a collection of institutions which allow the exchange of funds, such as banks, insurance companies, and stock exchanges
FEATURES:
• It boosts the economic development of a country
• It encourages both savings and investment
• It links savers and investors.
• It helps in capital formation
• It helps in allocation of risk
• It facilitates expansion of financial markets
• It aids in Financial Deepening and Broadening
COMPONENTS 1. FINANCIAL INSTITUTIONS
Financial institution is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange
Types of Financial Institutions:
• Commercial Banks: SBI, HDFC, ICICI Bank
• Investment Banks: JP Morgan, Deutsche Bank, Morgan Stanley
• Insurance Companies: LIC India, Kotak Mahindra Life Insurance
• Brokerage Firms: HDFC securties, Kotak securities
2. FINANCIAL MARKETS
Financial markets refers to any marketplace where the trading of securities occurs, including the stock market, bond market, forex market, and derivatives market
Types of Financial Markets:
• Money Market: It is market for short term funds wherin lending and borrowing of funds varies from overnight to year. Instruments of money market are treasury bills, call money, commercial bills etc
• Capital Market: It is a market which allows trading of funding instruments such as shares, debentures, debt instruments, bonds etc
3. FINANCIAL INSTRUMENTS
Financial instruments are assets that can be traded, or they can also be seen as packages of capital that may be traded.
Types of Financial Instruments:
• Cash Instruments: The value of cash instruments are directly influenced and determined by the markets. These can be securities that are easily transferrable and may also be deposits or loans agreed upon by borrowers and lenders
• Derivative Instruments: The value and characteristic of derivative instruments are based on vehicle underlying components, such as assets or interest rates.
4. FINANCIAL SERVICES
Financial services are economic services provided by the finance industry which encompasses a broad range of businesses that manages money
Types of Financial Services:
1. Banking
2. Professional Advisory
3. Portfolio Management
4. Wealth Management
5. Mutual Funds
6. Insurance
7. Stock Market
8. Tax/Audit consulting
9. Capital Restructuring
0 Comments