Functions of Financial System

Funct i onsofFi nanci alSyst em  Thefinanci alsys t em ofacount r yper f or msce r t ai nv al uabl ef unct i onsf or t heeconom mi i cgr owt hoft hatcount ry .Thema mai nf unct i onsofafinanci alsyst em maybebr i eflydi sc uss edasbel ow: ngf uncti on : ni 1.Savi  A mpor t antf unct i onofafinanci alsys t e mi st omobi l i se s a vi ng sandc hanne l i z et he mi nt opr o duc t i v eac t i v i t i e s .I ti st hr o ug hfinanc i al syst em t hesavi ngsar et r ansf orme medi nt oi nves t ment s. qui di t yf uncti on:Themo 2.Li mosti mport antf unct i onofafinanci alsyst em i st o pr ovi demo moneyandmonet aryasset sf ort hepr oduct i onofgoodsandser vi ces . Monet aryasse t sar et hoseasse t swhi chcanbeconve r t edi nt ocashormoney e as i l ywi wi t houtl os sofv al ue .Al lac t i v i t i e si nafinanc i als ys t e m ar er e l at e dt o l i qui di t y e i t he rpr o vi s i onofl i qui di t yort r adi ngi nl i qui di t y . mentf unct i on : hefinanci 3.Payme  T alsys t em offer sav er yc onv eni entmodeof payme mentf orgoodsandser vi ces .Thechequesys t em andcr edi tcar dsys t em ar e t heeasi es tmet hodsofpayme menti nt heec onomy my .Thecos tandt i meof t r ansact i onsareconsi der abl yr educed. skf unct i on:Thefinanc 4.Ri i almar ke t spr o v i depr o t e c t i o n ag ai ns tl i f e ,he al t h andi ncome meri sks.Theseguarant eesareaccomp mpl i shedt hr ought hesal eofl i f e, heal t hi nsur anceandpr opert yi nsur ancepol i ci es. School of Distance Education

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nf or mat i onf unct i on A : financi 5.I als ys t em makesav ai l abl epr i cer el at ed i nf orma mat i on.Thi si saval uabl ehel pt ot hosewhoneedt ot akeeconom mi i cand financi aldeci si ons.Fi nanci almar ket sdi ssemi mi nat ei nf orma mat i onf orenabl i ng part i ci pant st odevel opani nf orme medopi ni onabouti nvest ment ,di si nvest ment , r e i nv e s t me nto rho l di ngapar t i c ul aras s e t .  T ansf erf unct i on : financi 6 .r  A als ys t em pr ov i desamec hani s mf ort het r ansf er oft her esour cesacrossgeogr aphi cboundari es. orma mat oryf unct i ons : financi 7.Ref  A alsys t e m under t aki ngt hef unct i onsof devel opi ng,i nt r oduci ngi nnovat i vefinanci alasset s/i nst rument sservi cesand pr a ct i c esandr e s t r uc t ur i ngt hee xi s t i ngas s t s ,s e r vi c ese t c ,t ocat e rt he em me er gi ng needsofborr ower sandi nvest ors( financi alengi neeri ngandr eengi neeri ng) . 8.Ot herf uncti ons:I tas s i s t si nt hes e l e c t i o no fpr o j e c t st obefinanc e dand al s or e v i e wspe r f o r ma manc eofs uc hpr o j e c t spe r i o di c al l y .I tal s opr o m mo o t e st he pr ocessofcapi t alf orma mat i onbybri ngi ngt oget hert hesuppl yofsavi ngsandt he dema mandf ori nvest i bl ef unds. Rol eandI mport anceofFi nanci alSyst em i nEconomi mi cDevel opme m ent 1.I tl i nkst hes av e r sandi nv e s t o r s .I the l psi nmo bi l i z i ngandal l oc at i ngt he

s a vi ng se ffic i e nt l yande ffe c t i v e l y .I tpl a y sac r uc i alr o l ei ne c o no mi c dev el opment t hr oughsavi ngi nvest mentpr ocess.Thi ssavi ngs–i nvest mentpr ocessi scal l ed c api t alf or mat i o n. 2.I thel pst omoni t orcorpor at eperf ormance. 3.I tpr ovi desamechani sm f ormanagi nguncer t ai nt yandcont r ol l i ngri sk. 4.I tpr ovi desamechani sm f ort het r ansf erofr esour cesacr ossgeographi cal  boundar i e s. 5.I to ffe r spo r t f o l i oadj us t me ntf ac i l i t i e s( pr o v i de dbyfinanc i almar ke t sand financ i ali nt e r me di ar i e s ) . 6.I the l psi nl o we r i ngt het r ans ac t i o nc os t sandi nc r e a s er e t ur ns .Thi swi l l mot i vat epeopl et osavemor e. 7.I tpr o mo t e st hepr o ce s sofc api t alf o r mat i o n. 8.I thel psi npr omot i ngt hepr ocessoffinanci aldeepeni ngandbr oadeni ng. Fi nanci aldeepeni ngmeansi ncr easi ngfinanci alasse t sasaper cent ageofGDP andfinanci albr oadeni ngmeansbui l di ngani ncr easi ngnumberandvar i et yof part i ci pant sandi nst r ument s. I nshort ,afinanci alsyst em cont ri but est ot heaccel er at i onofeconomi c devel opment .I tcont ri but est ogr owt ht hr ought echni calpr ogr ess. School of Distance Education

I ndi anFi nanci alManagementPage8

St r uctur eofI ndi an Fi nanci alSyst em Fi nanci alst ruct ur er ef er st oshape,component sandt hei rorderi nt he financi alsyst em.TheI ndi anfinanci alsyst em canbebr oadl ycl assi fiedi nt o f ormal( organi sed)financi alsyst em andt hei nf ormal( unorgani sed)financi al syst em.Thef ormalfinanci alsyst em compr i sesofMi ni st ryofFi nance,RBI , SEBI andot herr egul at orybodi es.Thei nf ormalfinanci alsyst em consi st sof i ndi v i dual moneyl ender s,groupsofper sonsoper at i ngasf undsorassoci at i ons, part ner shi p fir msconsi st i ngofl ocalbr oker s,pawnbr oker s,andnonbanki ngfinanci al i nt er medi ari essuchasfinance,i nve st mentandchi tf undcompani es.  Thef or malfinanci als ys t em c ompr i s esfinanc i ali ns t i t ut i ons,financi al market s,financi ali nst rument sandfinanci alser vi ces.Theseconst i t uent sor component sofI ndi anfinanci alsy st em maybebri eflydi sc uss edasbel ow: