Questions and Answers
What does the Indian financial system consist of?
Institutions, markets, and services
What are the instruments of the financial system?
Coins, currency notes, cheques, bonds, stocks, futures, and swaps
What are the organized markets in the financial system?
Money market, capital market, and others
What is the role of money, credit, and finance in the economy?
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What is the primary function of the financial system?
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Study Notes
The Indian Financial System
- Consists of financial institutions, financial markets, and financial instruments that facilitate the flow of money and credit in the economy.
Components of the Financial System
- Financial Institutions: banks, non-banking financial companies (NBFCs), insurance companies, and other financial intermediaries.
- Financial Markets: money markets, capital markets, and foreign exchange markets.
- Financial Instruments: cash, bank deposits, stocks, bonds, debentures, and other financial assets.
Organized Markets in the Financial System
- Money Markets: deals with short-term debt securities with a maturity period of less than one year.
- Capital Markets: deals with long-term debt and equity securities.
- Foreign Exchange Markets: facilitates the exchange of foreign currencies.
Role of Money, Credit, and Finance in the Economy
- Money: serves as a medium of exchange, unit of account, and store of value.
- Credit: enables the transfer of purchasing power from one party to another.
- Finance: facilitates the allocation of resources, promotes economic growth, and improves the standard of living.
Primary Function of the Financial System
- To facilitate the flow of funds from savers to investors, thereby promoting economic growth and development.
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