“ mechanism evolved for

establishing a regular,
smooth, efficient and cost
effective link between the
savers & the investors”
 Financial
institutions

Financial services
institutions
Constituents of
financial system
Financial markets

Financial
instruments
A. FINANCIAL INSTITUTIONS:
Collect resources by accepting deposits from individuals
& institutions and lend them to trade, industry & others.
CB,UTI,LIC,IDBI,SFC,IFCI,RBI,SEBI etc.
B. FINANCIAL SERVICE INSTITUTIONS:
Includes services like insurance, stock listing, financial
guarantee, hire purchase, leasing, factoring, portfolio
mgt.,underwriting,credit rating etc.
ECGC,SHCI,NSE,BSE etc.
C. FINANCIAL MARKETS:
Bring together the borrowers & the lenders to enable them
to satisfy their mutual requirements.
 Call money market

Treasury bill market

Money market
(maturity Commercial bill
period up to 1 market
yr.)

Collateral loan.
market

Financial
markets CP & CD market

Primary

Securities
Capital
market(maturity secondary
period above 1 yr.)
Long term loans
1) Call money market:
For short duration ranging from overnight to a fort night.
Over night money -> money is borrowed or lent for a day.
Notice money -> money is borrowed or lent for more than a
day & up to 14 days.
No collateral security is required.

2) Treasury bill market :

Short term borrowing by Govt.
Eligible security for Statutory Liquidity Ratio (SLR).
Duration -> 14 days to 364 days .
SBI, RBI, CBs, LIC,GIC, ICICI, FIIs, etc .
3) Commercial bill market:
Commercial banks were provided demand loans by the RBI
against bank’s promissory notes. This is for CRR (Cash
Reserve Ratio) purpose.
4) Collateral loan market:
Market for loans against collateral securities like stocks &
bonds. Granted by commercial banks to private parties.
5) Commercial Papers & Certificates of Deposit market:
CP is a promissory note negotiable by endorsement &
delivery. May be issued at discount, Unsecured one .
Issuing company must have a Net Worth not less than 4 crore.
Denomination of 5 lakhs & or multiples there of.
CD is a certificate of title similar to a time deposit receipt
issued by a bank. Bank may issue at a discount or face value.
6) Securities

- Primary market
- Secondary market

7) Long term loans

D. FINANCIAL INSTRUMENTS:

Financial assets in the form of financial claims or securities.