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Questions and Answers
What is one of the primary uses of finances needed by the government?
What is one of the primary uses of finances needed by the government?
How does government intervention in India's financial system influence economic development?
How does government intervention in India's financial system influence economic development?
What does financial deepening refer to in the context of a financial system?
What does financial deepening refer to in the context of a financial system?
What was one significant change in India's financial system after Independence in 1947?
What was one significant change in India's financial system after Independence in 1947?
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Which of the following is NOT mentioned as a role of the financial system?
Which of the following is NOT mentioned as a role of the financial system?
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What does financial broadening mean in the context of a financial system?
What does financial broadening mean in the context of a financial system?
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What influence does the capital market have on the economy as mentioned in the context?
What influence does the capital market have on the economy as mentioned in the context?
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What is a key characteristic of the financial system in a mixed economy like India?
What is a key characteristic of the financial system in a mixed economy like India?
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Which type of financial instrument has a maturity period of more than 1 year?
Which type of financial instrument has a maturity period of more than 1 year?
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What is an example of a short term financial instrument?
What is an example of a short term financial instrument?
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Which of the following is NOT a feature of hybrid instruments?
Which of the following is NOT a feature of hybrid instruments?
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What service is primarily offered by commercial banks?
What service is primarily offered by commercial banks?
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Which organization is an example of a non-banking financial service provider?
Which organization is an example of a non-banking financial service provider?
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How do financial intermediaries generally enhance economic growth?
How do financial intermediaries generally enhance economic growth?
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What percentage of the total financial sector assets do commercial banks account for?
What percentage of the total financial sector assets do commercial banks account for?
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Which of the following services is an emerging trend in modern banking?
Which of the following services is an emerging trend in modern banking?
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What is the primary function of the financial market?
What is the primary function of the financial market?
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Which market primarily deals with short-term borrowing and lending?
Which market primarily deals with short-term borrowing and lending?
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How is the Capital Market categorized?
How is the Capital Market categorized?
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Which of the following is NOT a sector of the Money Market?
Which of the following is NOT a sector of the Money Market?
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What type of market facilitates the issuance of new securities?
What type of market facilitates the issuance of new securities?
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Which market is primarily involved in the trading of existing securities?
Which market is primarily involved in the trading of existing securities?
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Which of the following best defines the Foreign Exchange Market?
Which of the following best defines the Foreign Exchange Market?
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Which type of instrument is NOT typically associated with Capital Markets?
Which type of instrument is NOT typically associated with Capital Markets?
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What is a primary function of Commercial Banks?
What is a primary function of Commercial Banks?
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Which of the following is true about Credit Unions?
Which of the following is true about Credit Unions?
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What differentiates Non-Banking Finance Companies (NBFCs) from Commercial Banks?
What differentiates Non-Banking Finance Companies (NBFCs) from Commercial Banks?
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What is one of the main roles of Stock Exchanges?
What is one of the main roles of Stock Exchanges?
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What do Mutual Fund Companies do with the pooled funds from investors?
What do Mutual Fund Companies do with the pooled funds from investors?
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What is the purpose of Insurance Companies collecting premiums?
What is the purpose of Insurance Companies collecting premiums?
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Investment Bankers specialize in which of the following services?
Investment Bankers specialize in which of the following services?
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What role do Escrow Companies play in financial transactions?
What role do Escrow Companies play in financial transactions?
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What is one of the primary functions of the RBI in the banking sector?
What is one of the primary functions of the RBI in the banking sector?
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Which aspect does SEBI primarily focus on to protect investors?
Which aspect does SEBI primarily focus on to protect investors?
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What power does SEBI have over stock exchanges?
What power does SEBI have over stock exchanges?
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What does the IRDA regulate in the insurance industry?
What does the IRDA regulate in the insurance industry?
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Why was SEBI established in 1992?
Why was SEBI established in 1992?
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What role does the RBI play in controlling inflation?
What role does the RBI play in controlling inflation?
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What is one of the regulatory powers of the IRDA?
What is one of the regulatory powers of the IRDA?
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Which function does the RBI perform related to foreign exchange?
Which function does the RBI perform related to foreign exchange?
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Study Notes
Government Financial Needs
- Significant funds required for defense infrastructure, social welfare, public health, and education.
- Financial markets supply necessary finance to the government.
Economic Development
- India functions as a mixed economy with government intervention in financial systems.
- Macroeconomic variables, like interest rates and inflation, can be influenced by government actions.
- Availability of credit at lower rates supports corporate growth, contributing to national economic development.
Functions of Financial Systems
- Monitors corporate performance and offers resource transfer mechanisms across regions.
- Provides portfolio adjustment facilities through financial markets and intermediaries.
- Lowers transaction costs, encouraging higher savings among individuals.
- Supports financial deepening (increasing financial assets as GDP percentage) and broadening (diversifying participants and instruments).
Evolution of Financial System in India
- Financial system development gained attention post-Independence in 1947.
- Initial lack of financial institutions and an underdeveloped capital market.
- Shift towards a mixed economy prompted financial system evolution to meet socioeconomic objectives.
Financial Markets Overview
- Financial markets facilitate fund transfers from surplus to deficit sectors.
- Classifications based on asset duration and product nature:
- Money Market: Short-term borrowing/lending (up to 1 year).
- Capital Market: Long-term borrowing/lending (over 1 year).
- Foreign Exchange Market: Currency exchange transactions.
Types of Financial Instruments
- Long-term instruments (mature > 1 year): Share, Debentures, Mutual Funds.
- Short-term instruments (mature ≤ 1 year): Call money, Promissory Notes.
- Hybrid instruments: Features of both equity and debt, e.g., convertible debentures.
Financial Services
- Banking Services: Provided by commercial and development banks, including deposit acceptance and loan offerings.
- Non-Banking Services: Offered by companies like LIC and GIC; do not accept deposits.
- Other Services: Enhanced offerings like ATM, credit/debit cards, electronic fund transfers, and internet banking.
Role of Financial Intermediaries
- Mobilize public savings for productive use by pooling deposits and providing loans.
- Types of financial intermediaries:
- Commercial Banks: Major players in lending and borrowing.
- Credit Unions: Co-operative societies aiding member finances.
- Non-Banking Finance Companies (NBFCs): Provide loans at higher interest rates without accepting deposits.
- Stock Exchanges: Facilitate securities trading, earning through brokerage.
- Mutual Fund Companies: Pool investments to achieve capital gains for similar risk appetites.
- Insurance Companies: Offer policies for risk protection, pooling premiums for investment.
- Financial Advisors/Brokers: Guide client investments in securities.
- Investment Bankers: Specialize in IPOs, mergers, and debt issuances.
- Escrow Companies: Act as intermediaries in mortgage agreements.
- Pension Funds: Collect funds from employees for investment and retirement benefits.
Regulatory Bodies and Their Functions
-
Reserve Bank of India (RBI):
- Regulates money market and banking sector reserves.
- Manages currency, interest rates, and inflation control.
- Inspects financial statements of banks and regulates payments.
-
Securities and Exchange Board of India (SEBI):
- Established in 1992 to enhance investor confidence.
- Protects investors by preventing malpractices like insider trading.
- Regulates market participants, audits exchanges, and promotes investor education.
-
Insurance Regulatory and Development Authority (IRDA):
- Established in 1999 to oversee the insurance industry.
- Regulates insurance rates, agent qualifications, and terms for insurance policies.
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Description
This quiz explores the financial needs of governments for defense infrastructure, social welfare, public health, and education. It also examines the role of economic development in a mixed economy like India, including government interventions in the financial system.
