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financial system
As a set of institutions, instruments and markets, which foster savings and channels them to their most efficient use. The system consists of individuals (savers), intermediaries, markets and users of savings.



What is the significance of Financial Institutions
Transforming financial assets acquired through the market and constitution them into a different, and more widely preferable, type of asset-which becomes their liability.
Exchanging of financial assets on behalf of customers.
Exchanging of financial assets for their own accounts.
Assisting in the creation of financial assets for their customers, and then selling those financial assets to other market participants.
Providing investment advice to other market participants.
Managing the portfolios of other market participants.



What are the Functions of Financial Institution?
liability-asset transformation
size-transformation
risk-transformation
maturity-transformation
Role of Financial Intermediaries




Financial Markets
Financial markets are the centers or arrangements that provide facilities for buying and selling of financial claims and services.
Classification of Financial markets
Primary and Secondary Market
Capital and Money market
OR
1. Classification by nature of claim
¢ Debt Market
¢ Equity Market
2. Classification by maturity of claim
¢ Money Market
¢ Capital Market
3. Classification by seasoning of claim :
¢ Primary Market
4. Classification by immediate delivery or future delivery:
¢ Cash or spot Market
¢ Derivative Market
5. Classification by organizational structure:
¢ Auction Market
¢ Over -the-counter Market
¢ Intermediated Market
¢ Secondary Market


Financial Development Concepts

1. Efficiency
Information Arbitrage Efficiency
Fundamental Valuation Efficiency
Full Insurance Efficiency
Functional or Operational Efficiency
.

Innovation
Introduction of a new financial instrument or service or practice, or introducing new uses for funds, or finding out new sources of funds, or introducing new processes or techniques to handle day-to-day operations, or establishing a new organization-all these changes being on the part of existing financial institutions. In addition, the emergence and spectacular growth of new financial institutions and markets is also a part of financial innovation.
Factors responsible for Innovation


Financial Engineering
Financial engineering connotes development of new financial technology to cope with financial changes. It involves construction, designing, deconstruction, and implementation of innovative financial institutions, processes, and instruments. It means the formulation of creative solutions to problems in finance.



Financial Revolution
Diversification
Disintermediation
It refers to the phenomenon of decline in the share of financial intermediaries in the aggregate financial assets in an economy because people switch out ofâ„¢ their liabilities into direct securities in the open market



Financial Repression
Regulatory and discretionary policies distort financial prices or interest rates, discourage saving, reduce investment, and misallocate financial resources.
It represents economic conditions in which the governmentâ„¢s regulatory and discretionary policies distort financial prices or interest rates (i.e., the real interest rates are kept low or negative), discourage saving, reduce investment, and misallocate financial resources. The government-directed credit program, and direct rather than indirect credit controls predominate in a repressed system. As indicated above, it is also known as the system of administered interest rates and finance.



Financial Reforms, Financial Liberalisation, and
Deregulation
Privatization
Prudential Regulation
This is another major element of financial sector reforms. It mean regulation without suppression, and supervision and control without constriction
Internationalisation and Globalisation
Indian Financial Markets