Introduction to Financial System

A financial system is a complex, well-integrated set of sub-systems of financial institutions, markets, instruments, and services which facilitates the transfer and allocation of funds, efficiently and effectively.

The key functions of a financial system include providing a payments system for goods and services, regulating currency (through the central bank), performing banking functions, facilitating long-term capital formation, meeting short-term and long-term requirements, providing investment opportunities, managing international currency reserves, channeling funds from savers to investors, ensuring long-term economic growth, and managing risk.

<p>Financial markets are mechanisms that enable participants to deal in financial claims, providing a platform for the trading of financial instruments and services. They play a crucial role in allocating savings to investment, providing investment avenues for investors, and offering options for corporations to raise finance.</p> Signup and view all the answers

<p>Capital Market</p> Signup and view all the answers

<p>It is the market for financial instruments dealing with short-term liquidity needs, typically involving instruments with maturities of less than a year. These instruments are highly liquid and readily convertible into cash, making them suitable for managing short-term financial obligations.</p> Signup and view all the answers

<p>It is the market for long-term financial instruments, including equities, bonds, and other securities with maturities exceeding one year. The Capital Market is a key source of funding for businesses, governments, and other institutions.</p> Signup and view all the answers

<p>Primary Market</p> Signup and view all the answers

<p>It is the market for the initial issuance of new securities by companies and governments. This is where companies raise capital by selling shares or bonds to investors for the first time.</p> Signup and view all the answers

<p>It is the market for trading existing securities previously issued in the Primary Market. Investors buy and sell these securities through stock exchanges or over-the-counter (OTC) transactions.</p> Signup and view all the answers

<p>Financial institutions are intermediaries that play a crucial role in facilitating the flow of funds in a financial system. They act as channels for savings and investment, providing services like deposit taking, lending, and investment management.</p> Signup and view all the answers

<p>Banking Institutions</p> Signup and view all the answers

<p>The RBI is the central bank of India, responsible for regulating the monetary system, maintaining price stability, and promoting the financial stability of the country. Key functions include managing the supply of money, setting interest rates, and supervising banks.</p> Signup and view all the answers

<p>SEBI is the regulatory body responsible for overseeing the Indian stock market. It protects the interests of investors, ensures fair and transparent trading practices, and promotes the orderly development of the capital market.</p> Signup and view all the answers

<p>IRDAI regulates the insurance sector in India, ensuring the financial soundness of insurers, protecting the interests of policyholders, and promoting the development of a fair and equitable insurance market.</p> Signup and view all the answers

<p>Financial instruments are contractual agreements that represent the rights and obligations of parties involved. They are used to transfer value, manage risk, and facilitate the flow of capital in a financial system.</p> Signup and view all the answers

<p>Financial instruments can be categorized based on their maturity, risk profiles, and underlying assets. Key categories include equity securities, debt securities, derivatives, and other complex instruments.</p> Signup and view all the answers

<p>Financial services encompass a broad range of activities that facilitate the flow of capital, manage risk, and provide financial support to businesses and individuals. Examples include banking, insurance, investment management, and financial advising.</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>National Stock Exchange of India (NSE)</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>A QII is an institutional investor that meets specific criteria regarding size, experience, and investment sophistication. They are typically large financial entities capable of making significant investments in the capital market.</p> Signup and view all the answers

<p>Retail Investors</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>Category IV FPIs</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>The main objective is to efficiently allocate capital from savers to borrowers, facilitating economic growth, stability, and a robust financial environment.</p> Signup and view all the answers

<p>Key elements include a strong legal and regulatory framework, stable monetary conditions, sound public finances and debt management, a robust central banking system, a sound banking system, an effective information system, and a well-functioning securities market.</p> Signup and view all the answers