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INDAIN
FINANCIAL
SYSTEM
CHAPTER 1 INDIAN FINANCIAL SYSTEM
Indian Financial
System
2
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A financial system is the system that covers financial transactions and the exchange of money between
CHAPTER 1 lender and borrowers. A financial system INDIAN
investors, FINANCIAL
can be defined SYSTEM
at the global, regional or firm specific
level. Financial systems are made of intricate and complex models that portray Financial Institutions,
Services, Markets, and Instrument & Regulatory that link depositors with investors.
DEVELP FIN
PUBLIC PRIMARY SECONDARY DERIVATIVE CALL MONEY FACTORING SEBI
INSTI
MARCHANT
RRB BSE OPTION CD BANKING
PRIVATE
PLACEMENT
PORTFOLIO
REG STOCK EXC BILLS OF EX MGMT
OCTEI
3
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CHAPTER 1 INDIAN FINANCIAL SYSTEM
Cash Reserve Ratio (CRR) is a specified minimum Capital markets are markets for buying and selling equity
fraction of the total deposits of customers, which and debt instruments. Capital markets channel savings
commercial banks have to hold as reserves either in cash and investment between suppliers of capital such as retail
or as deposits with the central bank. CRR is set according investors and institutional investors, and users of capital
to the guidelines of the central bank of a country. like businesses, government and individuals. Capital
markets are vital to the functioning of an economy, since
STATUTORY LIQUIDITY RATIO capital is a critical component for generating economic
output. Capital markets include primary markets, where
Statutory liquidity ratio (SLR) is the Indian government new stock and bond issues are sold to investors, and
term for reserve requirement that the commercial banks in secondary markets, which trade existing securities.
India require to maintain in the form of gold, government
approved securities before providing credit to the EQUITY AND DEBT MARKET
customers. Statutory Liquidity Ratio is determined by
Reserve Bank of India maintained by banks in order to The debt market is the market where debt instruments
control the expansion of bank credit. are traded. Debt instruments are assets that require a
fixed payment to the holder, usually with interest.
The SLR is determined by a percentage of total demand Examples of debt instruments include bonds
and time liabilities. Time Liabilities refer to the liabilities (government or corporate) and mortgages. The equity
which the commercial banks are liable to pay to the market (often referred to as the stock market) is the
customers after a certain period mutually agreed upon, market for trading equity instruments. Stocks are
and demand liabilities are such deposits of the customers securities that are a claim on the earnings and assets of
which are payable on demand. An example of time liability a corporation. An example of an equity instrument would
is a six month fixed deposit which is not payable on be common stock shares, such as those traded on the
demand but only after six months. An example of demand New York Stock Exchange.
6 liability is a deposit maintained in saving account or
current account that is payable on demand through a
withdrawal form such as a cheque.
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CHAPTER 1 INDIAN FINANCIAL SYSTEM
STOCK EXCHANGE for permission to raise equity and debt and to get them
listed on a stock exchange.
A stock exchange or bourse is an exchange where stock
brokers and traders can buy and/or sell stocks (also called INVESTMENT BANKERS (MERCHANT
shares), bonds, and other securities. Stock exchanges BANKERS)
may also provide facilities for issue and redemption of
securities and other financial instruments, and capital Merchant banks under takes a number of activities such
events including the payment of income and dividends. as under taking the issue of stock, fund raising and
Securities traded on a stock exchange include stock management. They also provide advisor services and
issued by listed companies, unit trusts, derivatives, pooled counsel on mergers and acquisition etc. They are licensed
investment products and bonds. Stock exchanges often by the capital and market regulators.
function as "continuous auction" markets, with buyers and
sellers consummating transactions at a central location, FORIGN INSTITUTIONAL INVESTORS
such as the floor of the exchange. (FLLS)
BROKERS Fill is an investor or investment fund that is form or
registered in a country outside of the one in which it is
A broker is an individual person who arranges
currently investing. Fill are foreign-based funds authorized
transactions between a buyer and a seller for a
by the capital market regulator to invest in the Indian
commission when the deal is executed. A broker who also
equity and debt market through stock exchanges.
acts as a seller or as a buyer becomes a principal party to
the deal. Only the brokers approved by the capital market DEPOSITORIES
regulator can operate on the stock exchange
Depositories hold securities in demat form (as opposed
EQUILITY AND DEBT RAISERS to physical form), maintain accounts of depository
participants who, in turn, maintain sub-accounts of their
Companies wishing to raise equality to debt through stock
7 customers. On instructions of the stock exchange
exchanges have to approach a capital market regulator
clearing house, supported by documentation, a
with the prescribed application and a preforma prospectus
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CHAPTER 1 INDIAN FINANCIAL SYSTEM
depository transfers securities from the buyers to sellers including licensing of insurance companies, framing
accounts in electronic form. regulations about the conduct of business and
supervising all insurance activities in the country etc..
MUTUAL FUNDS
THE MULTI COMMODITITY EXCHANGE
A mutual fund is a form of Collective Investment that
pools money from investors and invests in Stocks, Debt OF INDIA LIMITED (MCX)
and other Securities. It is a less risky investment option
Multi Commodity Exchange of India Ltd (MCX) is an
for an individual investor. Mutual funds require the
independent commodity exchange based in India. It was
regulators approval to start an asset management
established in 2003 and is based in Mumbai. It is India's
company (the fund) and each scheme has to be
largest commodity futures exchange where the clearance
approved by the regulator before it is launched.
and settlements of the exchange happens and the
turnover of the exchange for the year 2015 was 55.52
trillion rupees (865.55 billion US dollars). MCX offers
REGISTRARS futures trading in bullion, non-ferrous metals, energy, and
a number of agricultural commodities (menthe oil,
Registrars maintain a register of share and debenture
cardamom, crude palm oil, cotton and others).
holders and process share and debenture allocation,
when issues are subscribed. Registrars too need
regulators approval to do business.
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CHAPTER 1 INDIAN FINANCIAL SYSTEM
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