Q.

1 note on the working on Indian Financial System

INDIAN FINANCIAL SYSTEM
The economic development of a nation is reflected by the progress of the various economic
units, broadly classified into corporate sector, government and household sector. While
performing their activities these units will be placed in a surplus/deficit/balanced budgetary
situations.
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. A Financial System is a composition of various
institutions, markets, regulations and laws, practices, money manager, analysts,
transactions and claims and liabilities.
Financial System;

The word "system", in the term "financial system", implies a set of complex and closely
connected or interlined institutions, agents, practices, markets, transactions, claims, and
liabilities in the economy. The financial system is concerned about money, credit and
finance-the three terms are intimately related yet are somewhat different from each other.
Indian financial system consists of financial market, financial instruments and financial
intermediation.

Q.2

Relationship

between

financial

system

and

economic development

The development of any country depends on the economic growth the country achieves over
a period of time. Economic growth deals about investment and production and also the
extent of Gross Domestic Product in a country. Only when this grows, the people will
experience growth in the form of improved standard of living, namely economic
development.

Q.3 Capital Market and Money market instruments in detail

Definition: Capital market is a market where buyers and sellers engage in trade of financial
securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as
individuals and institutions.
Description: Capital markets help channelise surplus funds from savers to institutions which
then invest them into productive use. Generally, this market trades mostly in long-term
securities.
Capital market consists of primary markets and secondary markets. Primary markets deal with
trade of new issues of stocks and other securities, whereas secondary market deals with the
exchange of existing or previously-issued securities. Another important division in the capital
market is made on the basis of the nature of security traded, i.e. stock market and bond market.
Examples of capital market transactions

A company raising money on the primary markets

A government raising money on the primary markets
Trading on the secondary markets

Definition of 'Money Market'

Definition: Money market basically refers to a section of the financial market where
financial instruments with high liquidity and short-term maturities are traded. Money
market has become a component of the financial market for buying and selling of
securities of short-term maturities, of one year or less, such as treasury bills and
commercial papers.
Over-the-counter trading is done in the money market and it is a wholesale process.
It is used by the participants as a way of borrowing and lending for the short term.
Description: Money market consists of negotiable instruments such as treasury
bills, commercial papers. and certificates of deposit. It is used by many participants,
including companies, to raise funds by selling commercial papers in the market.
Money market is considered a safe place to invest due to the high liquidity of
securities.
It has certain risks which investors should be aware of, one of them being default on

securities such as commercial papers. Money market consists of various financial

institutions and dealers, who seek to borrow or loan securities. It is the best source
to invest in liquid assets.
Q.4. Identification

of 2 new financial instruments in the

market
Ans- ye link open krnaa
[UC Browser] is good,have a look at it! http://www.investopedia.com/terms/f/financialinstrument.asp

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