Professional Documents
Culture Documents
FINANCE
FINANCE MEANS
y The Science Of The Management Of Money And
Other Assets. y The Management Of Money, Banking Investment And Credit. y Finances Monetary Resources, Funds Especially Those Of A Govt Or Corporate Body y The Supplying Of Funds Or Capital.
SYSTEM
SYSTEM MEANS
y A Body That Allows The Free Flow Of Transaction In
Systematic Manner. y THE WORDS SYSTEM IN THE TERMS OF FINANCIAL SYSTEM , IMPLIES A SET OF COMPLEX AND CLOSELY CONNETED OR INTERLINED INSTITUTIONS, AGENTS PRACTIES, MARKETS TRANSACTIONS CLAIMS AND LIABLITIES IN THE ECONOMY .THE FINANCIAL SYSTEM IS CONCERNED ABOUT MONEY, CREDIT AND FINANCIAL THE 3 TERMS ARE INTIMATELY RELATED YET ARE SOMEWHAT DIFFERENT FROM EACH OTHER
FINANCIAL SYSTEMS
FINANCIAL SYSTEM
y A System that allows the transfer of money
between service or borrowers, it channels household saving to the corporate sector. y Allows assets-liabilities transformation . It helps in risk transformation by diversification
Barter Money lender Chit funds Indigenous Banking Cooperative movements Societies, Banks, Joint stock banks Consolidation Commercial Banks Nationalization
y y y y y y y y
Investment Banks Development Financial institutions Investment / Insurance companies Stock exchange Market operations Specialized Financial institutions Merchant Banking Universal banking
Financial system
y Inter-relation of financial systems
Financial systems
Saving
Finance
System
Financial system
y Flow of funds
Flows of financial services Seeking of funds Namely, business, firms or govt etc Incomes & Financial claims Suppliers of funds Namely, household saving, tax etc
Saver, lenders
Economy
supply funds to various sectors and activities of the economy in ways that promoters the fullest possible utilization of resources without the destabilizing consequence of price level changes or unnecessary interference with individual desires.
y Robinson , the primary function of the system is to provide a
link between savings & investment for the creation of new wealth & to permit portfolio, adjustment in the composition of the existing wealth.
CAPITAL MARKETS
IFS
MONEY MARKETS
BANKING MARKETS
companies and govt. Consist of two parts: 1. Indian money market. 2. Indian capital market.
Development.
RBI was nationalized in 1948. 1948 industrial finance corporation was established. July 1st state bank of India established. 1969, 14 commercial bank were nationalized. LIC was established. 1972 govt of nationalized general insurance business. National industrial development corporation refinance corporation for industry ltd IDBI, SIDC, NABARD. y 1991 LPG transferred closed economy to open economy. y Private sector was allowed in insurance sector. y Introduction of derivative instrument like /index/ stock/ interest/ futures/ swaps/ etc
y y y y y y y
Financial assets
y Financial assets are those which are used for production or
consumption or for further creation of assets. Financial assets are different from physical assets as physical assets are not useful for further production of goods or for earning income. y Classification of financial assets Marketable Non- Marketable y Shares Bank deposits y Govt securities Provident funds y Bonds LIC Schemes y Mutual funds PO certificates
Financial intermediaries
y These are the organizations which intermediate and facilitates
financial transaction for both individuals & companies. Therefore financial intermediaries are financial institutions and investing institutions to facilities financial transactions in financial markets which may be organized or unorganized. y Classification of financial intermediaries:Capital markets intermediaries------- financial corporations/ LIC etc. Money market intermediaries----- commercial banks/ co operative banks etc.
Financial markets
y The places where financial transactions take place .
Therefore, financial markets may be centre or arrangement which facilitates buying and selling of financial assets. y Classification of financial markets 1) Unorganized market 2) Organized market Organized market:- in this market, standardized rules & regulation exist to govern the financial dealings of participants . These markets are under direct control of RBI and other regulatory bodies. Classification of organized markets:1. Capital markets 2. Money markets
Regulators
Financial markets
Forex market Capital market Money market Credit market Primary market & Secondary market
capital markets
y This is the markets for financial assets which have along &
indefinite maturity. Hence this market deals with long term securities . Capital market is again divided into 3 types, y 1. Industrial securities markets. y 2. Govt securities market. y 3. Long term loan market.
Primary markets
y It is new issue market which deals with those securities ,
which are issued to the public for the first time and borrower issues new securities for long term funds . This markets facilities capital formations. company raises capital in primary markets in 3 ways:y Public issue. y Right issue. y Private placements.
Company must have been registered under the company act 1956. Company must have obtained the permission from the controller of capital issue. Company must have appointed bankers and underwriter for the issue. Company must have been listed in the recognized stock exchange in India. Company must have raised the minimum within the prescribed period. Company will have to attach the prospects with every application for share subscription.
y y y y y
public in the collection centre if share are not allotted within the prescribed period. Allotment shall have to be made as per the direction of SEBI. Issue of share will be only at par if the company is completely new one. Issue of share by new company established by existing company (with 5 yrs track record) can freely issue share at premium. Private and closely had company shall be permitted to price their issue freely. Existing listed company will be allowed to raise fresh capital by freely pricing issue provided promoters contribution is 50% on 1st 100 crores , 30% on next 100 crores and 15% on the balance issue.
Secondary market
y The market where existing securities are traded is referred to
secondary market or stock market. In this market , purchases and sales of securities of govt, semi-govt, public sectors, private sectors, shares & debentures of joint stock companies are effected. y The securities of govt are traded in the stock markets as a separate component called Guilt edged market. Another component of stock market deals with stock and share of joint stock companies called market for stock & share or stock market.
investors through an intermediaries. OR y It is a financial market where previously issued securities & financial instrument such as stock , bonds, are bought and sold.
supply. The share price of liquid stock with wide participation keep changing through out the trading hours. They can be tracked continuously on trading screens. y Protection of investor interest y Protection the investor from the frauds & protecting the saving of the investor.
market. y Accounting Standard are close to close to the inner national standard. y Corporate governance guidelines issued. y discretionary allotment system to QIBs withdrawn.
including g-sec). Mutual funds are encouraged , both in public & private sector and they have been. Guidelines for private placements of debt issued. SEBI promoted self-regulatory organization (SROS). Allocation to retail investors increased from 25% to 35%. Separate allocation of 5% to domestic mutual funds with in the QIB category. Freedom to fix face value of shares below Rs 10 per share only in cases where the issue price is Rs 50 or more. Shares allotted on a preferential basis as well as the pre-allotment holding are subject to a lock in period of 6 month to prevent sales of shares.
brokers of stock exchange. Guidelines issued on listed agreement between stock exchange & corporate. Shortening of settlement cycle to T+2. Regular inspection of stock exchanges and other intermediaries including mutual funds put in place. Regulation of substantial acquisition of share and takeovers. FIIs allowed to invest in Indian capital since 1992.
trading introduced. Depositories act enacted Guidelines on corporate governance issued. SEBI has prohibited fraudulent and unfair trade practices, including insider trading. Straight through processing introduced and made mandatory for institutional trades. Margin trading short selling and securities lending and borrowing schemes introduced. Separate trading platform, namely indo-next for SME sector launched. Corporatization and demutualization of stock market notified.
set up. Comprehensive surveillance system. Securities appellate tribunal (SAT) set up, Introduction of exchange traded derivatives. Mutual funds &FII to enter the unique client code . (UCC) pertaining to the parent entity at the order entry level, and enter the UCCs for the individual schemes/ sub- accounts on the post closing session. Comprehensive risk management system (capital adequacy , trading & exposure limit margin requirement , index-based market-wide circuit breaker , online position monitoring, automatic disablement of terminals ) put in place.
Prudential measures
y Introduction & phased implementation of international best
practices and norms on risk weighted capital adequacy requirements accounting income recognition, provisioning and exposure. y Measure of strengthen risk management through recognition of different components of risk assignment of risk weights to various asset classes , norms on connected lending risk concentration , application of marked to market, principles for investment portfolio and limits on development of funds in sensitive activities.
of public ownership in public sector banks by allowing them to raise capital from equity market up to 49% of paid up capital. y Transparent norms for entry of Indian private sector , foreign and joint vendor banks and insurance companies permission for foreign investment in the financial sector in the form of FDI as well as portfolio investment permission to banks to diversity product.
requirement , market determined pricing for govt securities disbanding of administered interest rates with a few exception and enhanced transparency and disclosure norms to facilities market discipline. y Measures enhancing role of market forces. y Introduction of pure inter bank call money market , auction based repos reserve repos for short term liquidity management facilitation of improved payment & settlement mechanism.
reconstruction companies settlement advisory committees corporate debt restructuring mechanism etc for quicker recovery (restructuring promulgation of securitization & reconstruction of financial assets & enforcement of securities & interest (SARFAESI) act and its subsequent amendment to ensure creditor rights. y Setting up of credit information Bureau for information sharing on defaulters as also other borrowers. y Setting up credit information bureau for information sharing on defaulters as also on there borrowers. y Setting up clearing corporation of India limited (CCIL) to act as central counter party for facilitating payment and settlement system relating to fixed income securities and money market instruments.
Supervisory measures
y Establishment of the board for financial supervision as the apex
supervisory authority for commercial banks , financial institutions & non- banking financing companies. y Introduction of camels supervisory rating system move towards rise based supervision , consolidation supervision of financial conglomerates , strengthening off site surveillance through control return. y Recasting of the role of statutory auditors increased internal control through strengthening of internal audit. y Strengthening corporate governance enhanced due diligence on important shareholders fit & proper test for directors
Technology measures
y Setting up of INFINET as the commication backbone for the
financial sector , introduction of negotiated dealing system (NDS) for screen based trading in govt securities & real time gross settlement (RTGS) system.
SEBI- depositories & participants regulation. SEBI-venture capital funds regulations. SEBI-mutual funds regulations. SEBI- substantial acquisition of share & takeovers regulation. SEBI- buy back of securities regulations. SEBI- credit rating agencies regulation. SEBI-collective investment schemes regulations. SEBI- foreign venture capital investors regulation. SEBI-procedure for board meeting regulations. SEBI- issue of Sweat equity regulation. SEBI- procedure for holding enquiry by enquiry officer & imposing penalty regulation. SEBI- prohibition for fraudulent & unfair trade practice relating to securities markets regulations. SEBI-self regulatory organization regulation. SEBI-intermediaries regulation 2008 act. SEBI-issue & listing of debt instruments regulations 2008.
Assignment Modern activates of financial innovation after LPG & Present Indian scenario
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