{"id":10656,"date":"2017-06-15T12:26:38","date_gmt":"2017-06-15T12:26:38","guid":{"rendered":"https:\/\/www.oliveboard.in\/blog\/?p=10656"},"modified":"2017-06-16T13:31:19","modified_gmt":"2017-06-16T13:31:19","slug":"banking-awareness-notes-indian-financial-system","status":"publish","type":"post","link":"https:\/\/www.oliveboard.in\/blog\/banking-awareness-notes-indian-financial-system\/","title":{"rendered":"Banking Awareness Notes : Indian Financial System"},"content":{"rendered":"<p>&nbsp;<\/p>\n<p><span style=\"color: #000000;\">The &#8216;Indian Financial System&#8217; is an important topic in the general awareness section of banking exams. In this blog post, we bring to you everything you need to know about the financial system in India.<\/span><\/p>\n<h6><span style=\"color: #000000;\"><em><span style=\"text-decoration: underline;\"><strong>What is a financial system?<\/strong><\/span><\/em><\/span><\/h6>\n<p><span style=\"color: #000000;\">While performing economic activities some units (such as shops, companies etc.) will be placed in surplus\/deficit\/balanced budgetary situations.<\/span><\/p>\n<p><span style=\"color: #000000;\">A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit.\u00a0 A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities.<\/span><\/p>\n<p><span style=\"color: #000000;\">In other terms,<\/span><\/p>\n<p><span style=\"color: #000000;\">A financial system helps in wealth creation by linking savings with investments. It facilitates the flow of funds from the households (savers) to business firms (investors) and thus aids the development of both sides.<\/span><\/p>\n<p><span style=\"color: #000000;\">The financial system is mostly concerned about money, credit and finance &#8211; these terms are related but differ from each other as well. The<strong> Indian financial system<\/strong> primarily consists of the following:-<br \/>\n<\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\">Financial Services\u00a0<\/span><\/li>\n<li><span style=\"color: #000000;\">Financial Assets\/Instruments<\/span><\/li>\n<li><span style=\"color: #000000;\">Financial Markets\u00a0<\/span><\/li>\n<li><span style=\"color: #000000;\">Financial Intermediaries<\/span><\/li>\n<\/ul>\n<p><span style=\"color: #000000;\">The following sections discuss each of these in detail.<\/span><\/p>\n<h6><span style=\"color: #000000;\"><em><span style=\"text-decoration: underline;\"><strong>Financial Services<\/strong><\/span><\/em><\/span><\/h6>\n<p><span style=\"color: #000000;\">These refer to the activities concerning the design and delivery of financial instruments to individuals and businesses within the area of banking and related institutions, personal financial planning, leasing, investment, assets, insurance etc. These include:-<\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\">Operations &amp; services provided by the banks\u00a0 <\/span><\/li>\n<li><span style=\"color: #000000;\">Currency exchange, foreign exchange banking or the wire transfer<\/span><\/li>\n<li><span style=\"color: #000000;\">Asset management, hedge fund management and the custody services<\/span><\/li>\n<li><span style=\"color: #000000;\">Selling insurance policies, brokerages, insurance underwriting or the reinsurance<\/span><\/li>\n<\/ul>\n<p><span style=\"color: #000000;\"><a style=\"color: #000000;\" href=\"https:\/\/www.oliveboard.in\/rbi-grade-b\/?ref=blog\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-9565\" src=\"https:\/\/www.oliveboard.in\/blog\/wp-content\/uploads\/2017\/03\/Banner5.png\" alt=\"Banking Government Exams MBA Exams Free Mock Tests Free Exam Preparation Free tests Mock Tests All India Mock Tests SBI PO Exam IBPS PO Exams Bank Logo Bank Logos Banking Sector Oliveboard Quiz Daily Quiz Fun Quiz\" width=\"728\" height=\"90\" \/><\/a><\/span><\/p>\n<h6><span style=\"color: #000000;\"><em><span style=\"text-decoration: underline;\"><strong>Financial Markets<\/strong><\/span><\/em><\/span><\/h6>\n<p align=\"LEFT\"><span style=\"color: #000000;\">It is defined as the market in which financial assets are created or transferred. Financial markets can be categorized as follows:-<\/span><\/p>\n<p><span style=\"color: #000000;\"><b>1. Money Market<\/b>&#8211; It is defined as the market for short-term money and financial assets that are near substitutes for money. The term short-term means generally a period upto one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost. It can be sub-categorized as follows:-<\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\"><b><u>Unorganized Market:<\/u><\/b> money lenders, chit funds etc.\u00a0<\/span><\/li>\n<li><span style=\"color: #000000;\"><b><u>Organized Money Market:<\/u><\/b> Instruments include: treasury bills, commercial papers, certificate of deposit etc. Organized Markets work as per the rules and regulations of RBI. RBI controls the Organized Financial Market in India.<\/span><\/li>\n<\/ul>\n<p align=\"LEFT\"><span style=\"color: #000000;\"><b>2. Capital Market<\/b> &#8211;\u00a0 The capital market is designed to finance the long-term investments.\u00a0 The transactions taking place in this market will be for periods over a year. It can be classified into three groups:-<\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\"><b><u>Corporate Securities Market:<\/u><\/b> Corporate securities are equity and preference shares, debentures and bonds of companies. The corporate security market is a very sensitive and active market. It can be divided into two groups: primary and secondary.\u00a0<\/span><\/li>\n<li><span style=\"color: #000000;\"><b><u>Government Securities Market:<\/u> <\/b>In this market government securities are bought and sold. The securities are issued in the form of bonds and credit notes. The buyers of such securities are Banks, Insurance Companies, Provident funds, RBI and Individuals.\u00a0<\/span><\/li>\n<li><span style=\"color: #000000;\"><b><u>Long-Term Loans Market:<\/u><\/b> Banks and Financial institutions that provide long-term loans to firms for modernization, expansion and diversification of business. It is further categorized into: Term Loans Market, Mortgages Market and Financial Guarantees Market<\/span><\/li>\n<\/ul>\n<p align=\"LEFT\"><span style=\"color: #000000;\"><b>3. Forex Market<\/b> &#8211; The Forex market deals with the multi-currency requirements, which are met by the exchange of currencies.\u00a0 Depending on the exchange rate that is applicable, the transfer of funds takes place in this market.\u00a0 This is one of the most developed and integrated market across the globe.<\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\"><b>4. Credit Market<\/b>&#8211; Credit market is a place where banks, FIs and NBFCs purvey short, medium and long-term loans to corporate and individuals.<\/span><\/p>\n<h6><span style=\"color: #000000;\"><strong><em><span style=\"text-decoration: underline;\">Financial Assets \/ Instruments<\/span><\/em><\/strong><b><br \/>\n<\/b><\/span><\/h6>\n<p><span style=\"color: #000000;\">Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and \/or periodic payment in the form of interest or dividend.<\/span><\/p>\n<p><span style=\"color: #000000;\"> A financial transaction involves creation or transfer of a financial asset (as against a real transaction that involves exchange of money for real goods or services). <\/span><\/p>\n<p><span style=\"color: #000000;\"><a style=\"color: #000000;\" href=\"https:\/\/www.oliveboard.in\/rbi-grade-b\/?ref=blog\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-9565\" src=\"https:\/\/www.oliveboard.in\/blog\/wp-content\/uploads\/2017\/03\/Banner5.png\" alt=\"Banking Government Exams MBA Exams Free Mock Tests Free Exam Preparation Free tests Mock Tests All India Mock Tests SBI PO Exam IBPS PO Exams Bank Logo Bank Logos Banking Sector Oliveboard Quiz Daily Quiz Fun Quiz\" width=\"728\" height=\"90\" \/><\/a><\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">Some important financial assets \/ instruments are briefly discussed below :-<br \/>\n<\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\"><b>1. Call \/Notice-Money Market<\/b><\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\">It&#8217;s money borrowed or lent on demand for a very short period.<\/span><\/li>\n<li><span style=\"color: #000000;\">Thus money borrowed on a day and repaid on the next working day is called <strong>c<\/strong><em><strong>all money<\/strong><\/em>. <\/span><\/li>\n<li><span style=\"color: #000000;\">When money is borrowed or lent for more than a day and up to 14 days it is called <strong>notice money<\/strong>. <\/span><\/li>\n<li><span style=\"color: #000000;\">No collateral is required to cover these transactions.<\/span><\/li>\n<\/ul>\n<p align=\"LEFT\"><span style=\"color: #000000;\"><b>2. Inter-Bank Term Money<\/b><\/span><\/p>\n<p align=\"JUSTIFY\"><span style=\"color: #000000;\">Deposits with maturity period beyond 14 days is referred as the term money. The entry restrictions are the same as that of Call\/Notice Money. However, lending beyond 14 days is not allowed.\u00a0<\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\"><b>3. Treasury Bills<\/b><\/span><\/p>\n<p><span style=\"color: #000000;\"> These are short term (up to one year) borrowing instruments of the union government. It is an IOU by the Government (i.e. a promise by the Government to pay a sum of money after expiry of the stated period in less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction.<\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\"><b>4. Certificate of Deposits<\/b><\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">It is a negotiable money market instrument and is issued in a de-materialized form or as a Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. <\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">These can be issued by:-<\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\"> (i) Scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs)<\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">(ii) Select pan India financial institutions that have been permitted by RBI to raise short-term resources within the fixed limit. <\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">(iii) Banks have the freedom to issue CoDs depending on their requirements.<br \/>\n<\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\"><b>5. Commercial Paper<\/b><\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">CP is a note in evidence of the debt obligation of the issuer. It is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces. A company shall be eligible to issue CP provided-<\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\"><a style=\"color: #000000;\" href=\"https:\/\/www.oliveboard.in\/rbi-grade-b\/?ref=blog\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-9565\" src=\"https:\/\/www.oliveboard.in\/blog\/wp-content\/uploads\/2017\/03\/Banner5.png\" alt=\"Banking Government Exams MBA Exams Free Mock Tests Free Exam Preparation Free tests Mock Tests All India Mock Tests SBI PO Exam IBPS PO Exams Bank Logo Bank Logos Banking Sector Oliveboard Quiz Daily Quiz Fun Quiz\" width=\"728\" height=\"90\" \/><\/a><\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">(i) the tangible net worth of the company is not less than Rs. 4 crores <\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">(ii) the working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore and <\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">(iii) the borrowal account of the company is classified as a Standard Asset by the financing bank\/s. <\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">The minimum maturity period of a commercial paper is 7 days. <\/span><\/p>\n<p><span style=\"color: #000000;\"><b>Capital Market Instruments<\/b><\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\"> It consists of the following long term period (i.e. more than one year period) financial instruments:-<\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\">Equity shares, preference shares, convertible preference shares, non-convertible preference shares etc <\/span><\/li>\n<li><span style=\"color: #000000;\">Zero coupon bonds, deep discount bonds etc.<\/span><\/li>\n<\/ul>\n<h6><span style=\"color: #000000;\"><strong><em><span style=\"text-decoration: underline;\">Financial Intermediation<\/span><\/em><\/strong><\/span><\/h6>\n<p align=\"LEFT\"><span style=\"color: #000000;\">The role of the financial intermediary is to distribute funds from people who have extra inflow of money to those who don\u2019t have enough money to fulfill the needs. <\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">The best example of an intermediary is a bank which transforms the bank deposits to bank loans.<\/span><\/p>\n<p align=\"LEFT\"><span style=\"color: #000000;\">Some of the important intermediaries operating in the financial markets include: investment bankers, underwriters, stock exchanges, registrars, depositories, custodians, portfolio managers, mutual funds, financial advertisers financial consultants, primary dealers, satellite dealers, self regulatory organizations, etc.<br \/>\n<\/span><\/p>\n<table id=\"Table9\" border=\"1\" width=\"598\" cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"196\">\n<p align=\"CENTER\"><span style=\"color: #000000;\"><b>Intermediary<\/b><\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p align=\"CENTER\"><span style=\"color: #000000;\"><b>Market<\/b><\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p align=\"CENTER\"><span style=\"color: #000000;\"><b>Role<\/b><\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"196\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Stock Exchange<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Capital Market<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Secondary Market to securities<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"196\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Investment Bankers<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Capital Market, Credit Market<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">\u00a0Corporate advisory services, Issue of securities<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"196\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Underwriters<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Capital Market, Money Market<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Subscribe to unsubscribed portion of securities<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"196\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Registrars, Depositories, Custodians<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Capital Market<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Issue securities to the investors on behalf of the company and handle share transfer activity<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"196\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Primary Dealers Satellite Dealers<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Money Market<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Market making in government securities<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"196\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Forex Dealers<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Forex Market<\/span><\/p>\n<\/td>\n<td align=\"LEFT\" valign=\"MIDDLE\" width=\"197\">\n<p style=\"text-align: center;\" align=\"LEFT\"><span style=\"color: #000000;\">Ensure exchange ink currencies<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><span style=\"color: #000000;\">Hope this helps.<br \/>\n<\/span><\/p>\n<p><span style=\"color: #000000;\">All the best!!<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; The &#8216;Indian Financial System&#8217; is an important topic in the general awareness section of banking exams. In this blog<\/p>\n","protected":false},"author":1,"featured_media":10663,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,31,1212,60,62,65,2586,601,466,320],"tags":[3395,2553,600,2937,2936,2504,2028,3480,3481,3476,3396,3475,3479,3477,537,3478,731,3484,2503,2071,3398,3400,748,78,3402,3397,3399,847,67,336,3482,3487,3488,3486,3489,3430,3483,2502,647,3485,111,184],"class_list":["post-10656","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","category-bank-exams","category-featured","category-general-knowledge","category-government-exams","category-ibps-po","category-notes","category-other-banking","category-other-gov-exams","category-rbi-grade-b","tag-bank-exam-capsules","tag-bank-exam-static-gk","tag-bank-exams","tag-bank-exams-general-awareness","tag-bank-exams-general-knowledge","tag-banking-and-economy","tag-banking-awareness","tag-banking-awareness-2017","tag-banking-awareness-books","tag-banking-awareness-capsule-pdf","tag-banking-awareness-capsules","tag-banking-awareness-notes","tag-banking-awareness-pdf","tag-banking-awareness-pdf-2017","tag-banking-awareness-questions","tag-banking-awareness-questions-and-answers","tag-banking-exams","tag-components-of-indian-financial-system","tag-daily-gk","tag-daily-quiz","tag-ga-banking-awareness","tag-ga-capsules","tag-general-awareness","tag-general-knowledge","tag-general-knowledge-awareness-ebook","tag-gk-banking-awareness","tag-gk-capsules","tag-headquarters","tag-ibps-po","tag-ibps-po-mains","tag-indian-financial-system","tag-indian-financial-system-notes","tag-indian-financial-system-notes-mba","tag-indian-financial-system-pdf","tag-indian-financial-system-ppt","tag-international-financial-institutions","tag-meaning-of-indian-financial-system","tag-online-quiz","tag-quiz","tag-role-of-indian-financial-system","tag-sbi-po","tag-sbi-po-mains","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-50"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.6 (Yoast SEO v26.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Banking Awareness Notes : Indian Financial System - Oliveboard<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.oliveboard.in\/blog\/banking-awareness-notes-indian-financial-system\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Banking Awareness Notes : Indian Financial System\" \/>\n<meta property=\"og:description\" content=\"&nbsp; The &#039;Indian Financial System&#039; is an important topic in the general awareness section of banking exams. 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