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Questions and Answers
What type of rating do Government Securities (G-Secs) have?
What type of rating do Government Securities (G-Secs) have?
Which institution regulates the stock and commodity markets in India?
Which institution regulates the stock and commodity markets in India?
What is the primary function of financial services in India?
What is the primary function of financial services in India?
What is the name of the commission that oversees the commodity markets in India?
What is the name of the commission that oversees the commodity markets in India?
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What is the name of the company that defaulted in recent years, highlighting challenges in the Indian financial system?
What is the name of the company that defaulted in recent years, highlighting challenges in the Indian financial system?
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What is the primary function of financial institutions in the Indian financial system?
What is the primary function of financial institutions in the Indian financial system?
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What is the minimum paid-up capital required for a scheduled commercial bank in India?
What is the minimum paid-up capital required for a scheduled commercial bank in India?
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What is the main difference between scheduled and non-scheduled commercial banks in India?
What is the main difference between scheduled and non-scheduled commercial banks in India?
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What is one of the functions of financial institutions in the Indian financial system?
What is one of the functions of financial institutions in the Indian financial system?
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What are the four main components of the Indian financial system?
What are the four main components of the Indian financial system?
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Study Notes
The Indian financial system plays a crucial role in the economic development of the country. It helps in mobilizing and allocating savings, facilitating the expansion of financial institutions and markets, and acting as a link between the investor and the borrower. The system is composed of four main components: financial institutions, financial assets, financial services, and financial markets.
Financial Institutions
Financial institutions act as a mediator between the investor and the borrower. They mobilize savings, either directly or indirectly via the financial markets, and perform various functions such as:
- Converting a short-term liability into a long-term investment
- Converting a risky investment into a risk-free investment
- Providing a medium of convenience, denomination, and settlement
- Offering investment and loan facilities
- Providing financial advice and counseling
- Arranging and managing the issuance of securities
- Offering financial services like insurance and pensions
In India, financial institutions are broadly divided into two categories: banks and non-banking financial institutions (NBFIs). Banks are further classified into scheduled commercial banks and non-scheduled commercial banks. Scheduled banks are included in the second schedule of the RBI Act 1934 and have a paid-up capital of at least Rs. 500 crores. Non-scheduled banks have to maintain reserve requirements like SLR and CRR according to the banking regulation act 1949. Cooperative banks are also part of the financial institutions sector in India.
Financial Assets
Financial assets are the rights to receive future cash flows and are primarily traded on financial markets. They include stocks, bonds, currencies, derivatives, and commodities. In India, the Government Securities (G-Secs) market is the most important component of the financial assets market. The Reserve Bank of India (RBI) issues G-Secs, which are considered a safe investment due to their zero-risk rating. These securities are bought by various investors, including banks, mutual funds, insurance companies, and individuals.
Financial Services
Financial services are the activities that help individuals and businesses manage their funds and assets. They include banking services, insurance services, foreign exchange services, and investment services. In India, banking services provide facilities like issuing debit and credit cards, opening accounts, fixed deposits, and loan facilities. Insurance services offer products like life insurance, health insurance, and property insurance. Foreign exchange services facilitate currency exchange, foreign exchange, foreign remittances, and international trade transactions. Investment services help in asset management and the management of liabilities.
Financial Markets
Financial markets are platforms where financial assets and services are bought and sold. In India, the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and the Multi Commodity Exchange (MCX) are the major stock exchanges. The Forward Markets Commission (FMC) oversees the commodity markets, while the Securities and Exchange Board of India (SEBI) regulates the stock and commodity markets. The RBI manages the money market, foreign exchange market, and bond market.
The Indian financial system has faced challenges in recent years, including high-profile defaults of companies like Infrastructure Leasing & Financial Services (IL&FS). However, the system has shown resilience and has taken steps to address these challenges. The Indian government has implemented various measures to strengthen the financial system, such as managing systemic risk, improving asset quality, enhancing the framework for bad loans and bankruptcy, reforming public sector banks, restructuring the financial sector, deepening the financial sector, improving monetary policy transmission, improving the emergency liquidity framework, and supporting real estate transactions.
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Description
This quiz covers the components of the Indian financial system, including financial institutions, financial assets, financial services, and financial markets. It also explores the challenges faced by the system and the measures taken to address them.
