Classification of Financial Market

Classification of Financial Markets

Organised markets Unorganised markets – money lenders,

indigenous bankers, etc.,

Organised markets

Capital market Money market

Capital market

Industrial securities market

1.primary market

2.secondary market Govt securities market Long term loans market

1.term loan market

2.market for mortgages

3.market for financial guarantees

Importance of capital market

Important source for the productive use of the economy’s savings

Provides incentives to saving and facilitates capital formation

Provides an avenue for investors Facilitates increase in production and productivity in

the economy Induce economic growth Expert intermediaries Imp source of technological upgradation

Money market

Call money market Commercial bill market Treasury bill market Short term loan market

Foreign exchange market

Transfer purchasing power from one country to another

Provides adequate credit facilities Covers foreign exchange risk

Financial Rates of Return

Peculiar feature is int. rates do not reflect the free market forces

Achieves the following1.enable govt. to borrow comparatively

cheaply2.ensure stability3.support certain sectors through

professional lending rates4.mobilise substantial savings

Recent trends

Int rates on govt deposits freed Int rates on TB’s determined by auctions Coupon rates on govt loans revised upwards Int rates on debentures are allowed to be fixed

by companies Max rates of int payable on bank deposits(fixed)

are freed for deposits of above one year

Financial Instruments

Primary securities Secondary securities

Short term securities Medium term securities Long term securities

Characteristics of financial instruments

Easy transferability Ready market Possess liquidity Possess security value Enjoy tax status Carry risk Facilitate futures trading Less handling costs Risk and return proportionate Maturity period variations

Development of financial system

Nationalisation of financial institutions 1935 RBI established as a private inst.,

nationalised in 1948 1956 SBI nationalised previously known as

imperial bank of India 1956 245 insurance companies merged and

formed LIC 1969 14 major commercial banks nationalised

and 6 in 1980 and GIC re-organised

Starting of UTI

Est. 1964

1994 schemes approved by SEBI

Est. UTI Bank

UTI Investor service

UTI Security Exchange LTD

Establishment of development banks

1948 IFCI, 1951 SFC, 1955 ICICI (Pvt. Sec)

1958 RCI 1964, on 1st July IDBI,1971 IDBI, LIC jointly set up IRCI renamed as IRBI in 1997, now a ltd co. IIBI,

SIDBI(2-4-1990)

Institutions for financing agriculture

1963 ARDC

1982 July NABARD

Institution for foreign trade

1.01.1982 EXIM Bank

Institution for housing finance1988 NHB

SCHIL est. in 1987Mutual Fund IndustryVenture capital institutions

1986 IDBI started VC financingIFCI started a subsidiary Risk Capital and Technical Finance CorporationICICI and UTI jointly set up Technical Development Information Corporation of India Ltd

Contd…………….

Credit rating agencies CRISIL CARE DCR

Multiplicity of financial instruments Legislative support

Weakness of Indian Financial System

Lack of coordination between financial inst Monopolistic market structures Dominance of development banks in

industrial financing Inactive and erratic capital market Imprudent financial practice