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Financial Services
These services generally include the
banking services, Foreign exchange
services,
investment
services,
insurance services and few others.
1.Banking Services Includes all the
operations provided by the banks
including to the simple deposit and
withdrawal of money to the issue of
loans, credit cards etc.
2.Foreign Exchange services this
includes the currency exchange, foreign
exchange banking or the wire transfer
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Financial Services
3. Investment Services It generally
includes the asset management, hedge
fund management and the custody
services
4. Insurance Services It deals with the
selling of insurance policies, brokerages,
insurance underwriting or the reinsurance
5. Some of the other services include the
advisory services, venture capital, angel
investment etc.
Financial Institutions
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Financial Institutions
A financial intermediary is an institution
which connects the deficit and the surplus.
The best example of an intermediary can be
a bank which transforms the bank deposits
to bank loans.
The role of financial intermediary is to
channel funds from people who have extra
inflow of money i.e., the savers to those
who do not have enough money to fulfill the
needs or to carry out the basic activities i.e.
the borrowers.
Functions of Financial
Intermediaries
Maturity transformation Deals with the
conversion of short-term liabilities to long term
assets.
Risk transformation Conversion of risky
investments into relatively risk-free ones.
Convenience denomination Way of making the
unmatched matching which is matching small
deposits with large loans and large deposits
with small loans.
Financial Intermediaries are classified into two
types namely, Depository and Non-Depository
Institutions.
Financial Instruments
Financial Institutions
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Financial Instruments
Financial Instrument is a trade-able asset which can
be in terms of cash, agreement, evidence of an
ownership in an entity; or a contractual right which
has the right to deliver cash or any kind of asset.
Types
1. Deposits Deposit in a laymans term, means to
save or to keep safely. Deposits can be made either
with banking or non-banking firm.
2. Stock Stocks represents the ownership of the
issuing company. It is a form of corporate equity
ownership where in the total stock of the company
is divided into shares and the individuals has the
provision to trade the shares in the exchange.
Financial Instruments
3. Debts Unlike the stocks, financial assets
which are in the form of debts create an
obligation on the borrower of the fund to
repay the amount borrowed. The debt
instrument, thus in a sense, is a contract
entered into by the borrower and the
lender which specifies the amount of fund
borrowed, period of borrow, the rate of
interest that will be charged and the
repayment methods.
Financial Markets
Financial Instruments
Financial Institutions
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Financial Markets
Financial Market is a mechanism that allows
people to indulge themselves in the buying
and selling i.e. trade of financial securities
(for example stocks and bonds), commodities
(for example precious metals) at prices that
reflect the markets effectiveness.
Defined as the market in which financial
assets are created or transferred.
These assets represent 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.
Financial Markets
1) Capital Market Market where business enterprises
Money Market
Instruments in Money Market
Call money market
Treasury bills market
Markets for commercial paper
Certificate of deposits
Bills of Exchange
Money market mutual funds
Promissory Note
Financial Markets
4) Derivative Market The derivative
market is the financial market meant
for derivatives.
The financial instruments like the
futures contracts or options, which
are derived from other forms of
assets, are traded in these markets.
Financial Markets
5) Insurance Market Deals with the trading of
insurance policies.
6) Futures Market A vertical in financial market
where people can trade standardized futures
contracts which is a contract to buy specific
number of quantities of a commodity or
financial instrument at a specified price with the
delivery
of
the
commodity
or
financial
instrument set at a specified time in the future.
7) Foreign Exchange Market Also known as Forex
is a global, worldwide decentralized financial
market meant only for the trading of currencies.
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Saving Function
Liquidity Function
Payment Function
Risk Function
Policy Function
1951 to 1990
1. Moneylenders ruled till 1951. No worthwhile Banks at that time. Industries
depended upon their own money. 1951
onwards 5 years PLAN commenced.
2. PVT. SECTORS TO PUBLIC SECTOR MIXED
ECONOMY
3. 1st 5 year PLAN in 1951 Planned Economic
Process. As part of Alignment of Financial
Systems Priorities laid down by Govt.
Policies.
4. MAIN Elements of Fin. Organisations
5. Public ownership of Financial Institution
6. Strengthening of Institutional Structure
7. Protection to Investors
8. Participation in Corporate Management
9. Organisational Deficiencies.
Nationalisation
1.RBI
1948
2.SBI
1956 (take-over of Imperial Bank of
India)
3.LIC
1956 (Merges of over 250 Life
Insurance
Companies)
4.Banks
1969 (14 major banks with Deposits
of over
Rs. 50 Crs.nationalised)
1980
(6 more Banks)
5.Insurance 1972 (General Insurance Corp. GIC
by New
India, Oriental, united and
National
Development
1. Directing the Capital in confirmity with
Planning priorities
2. Encouragement to new entrepreneurs
and small set-ups
3. Development of Backward Region
4. IFCI (1948)
5. State Finance Corporation (1951) Purely
Mortgage institution
6. IDBI (1964) As subsidiary of RBI to
provide Project / Term Finance
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Development
LIC
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IMPORTANT DEVELOPMENTS
1. Development Financial Institutions :
(DFIs)
2. Started providing Working Capital
3. Set up CREDIT RATING AGENCIES
4. CRISIL(IPO IN 1993-94; standard &
poor acquires 9.68% in 1996-97 S & P
acquires shares / holding upto 58.46%)
5. ICRA Set up in 1991 by leading
FIs/Banks/Fin. Ser. Cos. And Moodys
CARE Set-up by IFCI/Banks.
6. FITCH a 100% subsidiary of FITCH
Group.
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Privatisation of DFI
1. Reduction in Govt. holding & Public
Participation e.g. IFCI Ltd., IDBI Ltd.,
ICICI Ltd.
2. Conversion into Banking / Merger into
Banking Companies IDBI Bank & ICICI
Bank
3. Issuance of Bond by DFIs without
Govt.s Guarantees to mobilise
resources.
4. Reduction in holding of Govt. in
Banks, i.e. Public Participation /
Listing
INDUSTRIES
1.Rise & Growth of Service Sector
industries.
2.Reliance & Dependance on technology.
3. E-mail & mobile made sea-change in
communication, data collection etc.
4.Computerisation a catch phrase and
inevitable need of an hour.
5.Dependent on Capital Market rather
than only Debts dependancy.
6.Scalability of operations through
globally competitive size.
7.Broad basing of Board.
8.Professional Management. 35
NBFC
1.NBFC under RBI governance to finance
retail assets and mobilise small/medium
sized savings.
2.Very large NBFCs are emerging (Shri
Ram Transport Finance, Birla, Tata
Finance, Sundaram Finance, Reliance
Finance, DLF, Religare etc.
Commercial Bank
7. Focus on Non-Fund Business like L/C,
Guarantees, Acceptance, FOREX etc.
8. Promoting Signature-based and consultancy
services like Project Counselling, Merchant
Banking, New Issues Management, Capital
Market
related
activities,
Merger
&
Acquisitions, debt syndication, trusteeship
of debts, sponsoring Mutual Funds, Wealth
Management, Sales & Services of insurance
(both life & non-life) products etc.
9. New Private Sector Banks (AXIS, YES, HDFC,
KOTAK MAHINDRA etc.)
10. CAMELS Rating (C-Capital Adequacy, AAsset Quality, M-Management, E-Earning, LLiquidity, & S-Systems & controls).
IFM An Overview
POST 1990
Mutual Funds
1.Bifurcation of UTI and UTI (AMC) put under
SEBI.
2.Banks, Broking Houses, Finance Companies
Insurance Companies, Pvt. Sector in Foreign
collaboration, FII and Merchant Banks set up
Mutual Funds with a varieties of schemes.
3.Helps small investors in big way
4.Backbone of Capital Markets
5.Mutual Funds, AIG, Baroda Pioneer, Birla
Sunlife, Canara Robeco, DBS Chola, Edelweiss,
Fidelity, Fortis, Franklin, HSBC, HDFC, ICICI
Prudential, IDFC, ING, JM, Kotak, LIC, Magnum,
Mirae, Morgan, Quantum, Reliance, Religare,
Sahara, Sundaram BNP, Tata Tourus, UTI etc.
6.Mutual Funds Investment Schemes (over 1000
in Nos.)
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