FIM by Tausif
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Transcript of FIM by Tausif
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Presentation on
Financial Institutions and Markets
By :TAUSIF G
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Financial system
What is financial system??Its a structure in an economy to mobilize the
capital from various surplus sectors and distribute
the same to the various needy sectors.It provides a system by which savings are
transformed into investments.
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Financial system
Financial markets
Financial instruments
Financial intermediaries
Financial services
Regulatory bodies
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Financial market
A market wherein financial instruments such
as financial claims, assets, securities are
traded.
Its the place where people and
organization wanting to borrow money are
brought together with those having surplus
funds is called a financial market.
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Roles /features/characteristics of
financial markets
In financial market, the lenders and borrowers
come together for fund mobilization.
The corporate sectors raise short term and
long term funds in the financial market.
The financial instruments are traded in the
financial market.
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The stock exchanges facilitates such above
trade.
The financial markets also facilitates foreign
exchange markets, where one currency isexchanged for another countryscurrency.
The financial market is highly volatile andsusceptible to panic.
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The financial market is mainly dominated by
financial institutions.
The financial market has various segments viz;
stock market, bond market, etc, and also
having primary and secondary segments
among them.
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Needs and functions of financial market
It provides investors avenues.
Financial market assists in channelizing savings
and optimal allocation of capital.
It provides information of prices of securities.
Stock exchanges provides a market to ensure
liquidity.
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Financial market provides for foreign exchange
market.
Financial market facilitates low cost of
transaction and information.
It indicates the inherent strength of the
economy.
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Types of financial markets
Money market
Capital market
Forex market
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Money market
Itsa market for the lending and borrowing of shortterm funds i.e. its a market short term debtinstruments.
It deals with financial assets whose period ofmaturity is less than or up to one year.
Its a market for financial assets that are closedsubstitution for money.
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Objectives of Money market
Its an opportunity for investment in short
term surplus fund.
It gives a scope for removing short term
deficit.
Enables RBI to regulate the liquidity in the
economy.
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Features of Money market
Its a wholesale market of short term debt
instruments.
Its not a single market but a collection of
markets for instruments.
Itsa need based market wherein the demand
and supply of money shape the market.
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It deals with financial assets whose maturity
period is less than or up to one year.
Normally transactions takes place through
phone or mails.
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Functions of Money market
It provides a balancing mechanism to even outthe demand and supply of short term funds.
It provides reasonable access to suppliers andusers of short term funds to fulfill theirrequirement.
It provides focal point for RBI for influencingliquidity and level of interest rates in theeconomy.
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Participants in Money market
RBI
Commercial Banks
Mutual funds NBFC
Provident funds
DFHI STCI, etc.
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Role of RBI in Money market
The aim of RBI to operate in money market is;a) To ensure that liquidity and short term
interest rates are maintained at levels
consistent with the monitoring policy ofobjectives of maintaining price stability with
the help of REPOs, CRR, open market
operations, etc.
b) To ensure adequate flow of credit to the
productive sectors.
c) To bring about order in the forex market.
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Types of financial instruments
Call/Notice money
Treasury bill
Commercial paper Certificate of deposits
Repo and reverse repo
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Call/Notice money
Very short period market or overnight market
Call is for 1 day and notice is for 2-14 days
National holidays are excluded
Players- Bankers, DFHI
Transactions are made on phone or by E-mails
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Treasury bills
Issued by Central govt. through RBI.
Normally issued on discount which has zero
interest.
No physical presence but bought through
Subsidiary general ledger account by the
Investors(commercial banks, NBFC, STCI, DFHI).
Period7 days to 1 year
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Types of treasury bills
1. 91 day treasury bill
Period - 91 days
Auctionevery week on Friday
value100 cr.
2. 182 day treasury billPeriod182 days
Auctionalternate Wednesday
Value100 cr
3. 364 day treasury bill-Period- 364 days
Auctionalternate Wednesday
value500 cr.
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Benefit
Highly liquid able
Very safe as issued by Central govt. through
RBI.
Low level of risk
Short period bill
Shortcomings-
High investors take part
No active secondary markets
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Commercial paper
It is an unpromised discounting paper issuedat a discount rate by eligible corporate who
have permission from RBI.
Conditions Net tangible asset should be at least Rs. 4cr as
per latest balance sheet.
Working capital limit should be within theBanks set up limit.
There should not be any NPAs of the
company, there should be standard assets.
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Commercial Bills
According to Section 5 of the Negotiable
Instruments Act, Commercial Papers are
unsecured promissory notes drawn by the
lender and signed by the borrower promisingto pay the money to the lender or bearer of
the document.
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Types of commercial bills
USANS bills- only on maturity this bill can behonored.
Demand bill- whenever demanded this bill
should be honored. Documentary bill- the documents of property
are kept with the bank and when the bill is
honored, the documents are transferred. Clear bill- when the bill is honored all the
documents are honored.
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Benefits-
Highly liquid in nature and can be transferred.
Shortcomings-
No active secondary markets.
Exchange should be done with schedule
banks.
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Certificate of deposits (CDs)
It is negotiable time deposit instrument.
It can be traded or it is transferrable.
RBI permits authority to issue CDsto;
Schedule commercial banks
All Indian financial institutions (ICICI, IDBI)
Minimum volumeabove 5 lakhs
Lock in period15 days, after 15 days it can be traded
It can be issued at discount on face value
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Repos (repurchase option)
Its a transaction where the seller sells the
security with an assurance to repurchase it in
future at pre determined price.
Reverse repos
Its a transaction where the buyer buys the
security assuring that he will sell the security
to the seller at pre determined price and date.
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Types of Repos-
Market repo/inter bank repo-
In this schedules commercial banks, DFHI,STCI are permitted by RBI to play the Repo
game.
Here Mutual funds are major provider offunds and foreign banks are the borrowers.
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RBI Repo- if RBI wants to inject liquidity, it
buys security from commercial banks is called
RBI repo.
RBI reverse repo- if RBI wants to absorb
liquidity, it sells security to the commercial
banks is called as RBI reverse repo.
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Thank you