Financial system is a system of arranging different types of funds required for the business.

It deals about (a) Financial Institutions (b) Financial Markets (c) Financial Instruments (d) Financial Services (a) CAPITAL MARKET It is the market for long term funds i.e., raising capital for Companies through issue of shares and debentures. The Capital market can further divided into (a) Primary Market and (b) Secondary Market (i) Primary Market: It is the market for primary needs of the company. The Company sells its shares at the time of promotion and the investors directly buy the shares from the company through application. (ii) Secondary Market: It is the market for secondary needs of the company. The sale and purchase of securities i.e., shares and debentures will take place through the recognized stock exchanges. (b) MONEY MARKET: It is a market for short term funds. Money market provides working capital. (c) FOREIGN MONEY MARKET It is a market for foreign exchange which is bought and sold. In India the foreign market is controlled by Reserve Bank of India. Foreign Exchange Management Act (FEMA) deals with foreign exchange.

(d) GOVERNMENT SECURITIES MARKET It is a market for Government securities like Treasury Bills and Bonds. Treasury Bills are bills issued for meeting the short term revenue expenditure of the Government. Bonds are issued for raising Long term loans which are repayable over a period of 15 to 20 years. (C) FINANCIAL INSTRUMENTS Financial instruments include both instruments and products. Instruments include cheques, drafts, letter of credit, travellers cheques, commercial paper, GDRs, bonds etc.,. Products may be in the form of Credit Cards, Debit Cards etc., (a) Negotiable Instruments A negotiable instrument is an instrument that is transferable from one person to another. Negotiable instrument may be a bearer instrument or an order instrument. A negotiable instrument may be promissory notes, bills of exchange or cheque etc., (b) Commercial Paper A commercial paper is one which is issued by leading financial institution which can be taken by any borrower and discounted with commercial banks. (c) Bill of lading It is a document signed by the carrier, acknowledging shipment of the goods and containing the terms and conditions of carriage. (d) Letter of Credit It is a letter by the importer bank guaranteeing the credit worthiness of the importer. (e) Travellers Cheques It is a cheque issued by banks to the traveling public which can be cashed at ease. (D) FINANCIAL SERVICES Financial service, as a part of financial system provides different types of finance through various credit instruments, financial products and services. It enables the user to obtain any asset on credit according to his convenience and at a reasonable interest rate.