Indian Financial Markets: Key Features

Indian Financial Markets

• Financial markets enable the efficient allocation of resources for productive activities in the economy.
• Users of funds include governments, businesses, and households seeking funds for activities.
• Providers of surplus funds include governments, businesses, and households with excess funds.
• Intermediaries like banks, financial institutions, mutual funds, and insurance companies facilitate the transfer of funds.

Functions of Financial Markets

• Enable access to funds for consumption or productive activities.
• Aggregate funds from multiple investors for productive economic activity.
• Ensure efficient transfer of funds at a cost that attracts savers and borrowers.

Key Features of Financial Markets

• Provide liquidity and exit options for participants.
• Facilitate the dissemination of relevant information to all participants.
• Allow participants to review and re-allocate resources based on new information.
• Ensure the allocation and re-allocation of resources through primary and secondary markets.

Components of Financial Markets

• Money markets: short-term lending and borrowing of funds.
• Securities or capital markets: long-term transfer of funds using debt and equity instruments.

Market Participants

• Banks and financial institutions: facilitate fund transfers and provide liquidity.
• Mutual funds, insurance companies, and pension funds: large, informed investors providing liquidity and stability.
• Fund managers and financial advisors: provide investment advice and fund management services.
• Brokers, dealers, custodians, and depositories: facilitate market activities.

Supporting Markets

• Commodities markets: protect against adverse price movements.
• Foreign exchange markets: facilitate international trade and investment.
• Insurance and pension markets: protect households' financial situations and play a key role as institutional investors.