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There are areas or people with surplus funds and there are those with a deficit. A financial system
or financial sector functions as an intermediary and facilitates the flow of funds from the areas of
surplus to the areas of deficit.

The basic structure of Indian Financial System is divided into four components which are:

• Financial Services

• Financial Markets

• Financial Instruments

• Financial Institutions

Financial Services

Financial service is part of financial system that provides different types of finance through various
credit instruments, financial products and services.

& these financial Services and products provided to consumers and businesses by financial
institutions such as banks, insurance companies, brokerage firms, consumer finance companies, and
investment companies .

These services generally include the banking services, Foreign exchange services, investment
services, insurance services , advisory services, venture capital, angel investment etc.

Financial Market

A financial market is a broad term describing any marketplace where buyers and sellers participate
in the trade of assets such as equities, bonds, currencies and derivatives. e.g., a stock exchange or
commodity exchange.

1) Capital Market

2) Commodity Market

3) Money Market

4) Derivative Market

5) Insurance Market

6) Futures Market

7) Foreign Exchange Market


Financial instruments are assets that can be traded. Most types of financial instruments provide an
efficient flow and transfer of capital all throughout the world's investors.

Money Market Instruments

The money market can be defined as a market for short-term period or a period upto one year

1. Call/Notice Money

2. Treasury Bills

3. Term Money

4. Certificate of Deposit

5. Commercial Papers

Capital Market Instruments

The capital market generally consists of the following long term period i.e., more than one year

financial instruments; In the equity segment Equity shares, preference shares, convertible
preference shares, non-convertible preference shares etc and in the debt segment debentures, zero
coupon bonds, deep discount bonds etc.

Hybrid Instruments

Hybrid instruments have both the features of equity and debenture.

Financial Intermediary

What is a 'Financial Intermediary'

A financial intermediary is an entity that acts as the middleman between two parties in a financial
transaction, such as a commercial bank, investment banks, mutual funds and pension funds.

Financial intermediation connects borrowers with savers; these intermediates help channel funds
from one person, or entity, to another.