Characteristic Features of Financial Instruments

Classification of Financial Market

Classification of Financial Markets  

Organised markets Unorganise Unorga nised d markets markets ± mone money y lenders lenders,, indigenous bankers, etc.,

Organised markets 

Capital market

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Money market

Capital market 

Industrial securities market 1.primary market 2.secondary market

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Govt securities market

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Long term loans market 1.term loan market 2.market for mortgages 3.market for financial guarantees

Importance of capital market 

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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

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Commercial bill market

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Treasury bill market

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Short term loan market

Foreign exchange market 

Transfer purchasing power from one country to another 

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Provides adequate credit facilities

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Covers foreign exchange risk

Financial Rates of Return Peculiar feature is int. rates do not reflect the free market forces   Achieves the following 1.enable govt. to borrow comparatively cheaply 2.ensure stability 3.support certain sectors through professional lending rates 4.mobilise substantial savings 

Recent trends 

Int rates on govt deposits freed

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Int rates on TB¶s determined by auctions

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Coupon rates on govt loans revised upwards

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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

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Secondary securities 

Short term securities

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Medium term securities

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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 

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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

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Est. 1964

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1994 schemes approved by SEBI

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Est. UTI Bank

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UTI Investor service

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UTI Security Exchange LTD

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Establishment of development banks

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

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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)

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Institutions for financing agriculture 

1963 ARDC

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1982 July NABARD

Institution for foreign trade 

1.01.1982 EXIM Bank

Institution for housing finance

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1988 NHB

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SCHIL est. in 1987

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Mutual Fund Industry

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Venture capital institutions

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1986 IDBI started VC financing

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IFCI started a subsidiary Risk Capital and Technical Finance Corporation 

ICICI and UTI jointly set up Technical Development Information Corporation of  India Ltd 

Contd«««««. 

Credit rating agencies 

CRISIL

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CARE

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DCR

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Multiplicity of financial instruments

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Legislative support

Weakness

of Indian Financial

System 

Lack of coordination between financial inst

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Monopolistic market structures

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Dominance

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Inactive and erratic capital market

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Imprudent financial practice

of development banks in industrial financing