Jay Shree Ram! Here I am sharing one liners on Financial system. Please note them down.
* Van Horne defined the financial system as the purpose of financial
markets to allocate savings efficiently in an economy to ultimate users
either for investment in real assets or for consumption.
* Christy has
opined that the objective of the financial system is to "supply funds to
various sectors and activities of the economy in ways that promote the
fullest possible utilization of resources without the destabilizing
consequence of price level changes or unnecessary interference with
individual desires."
* According to Robinson, the primary function of the system is "to
provide a link between savings and investment for the creation of new
wealth and to permit portfolio adjustment in the composition of the
existing wealth."
* It may be said that the primary function of
the financial system is the mobilisation of savings, their distribution for industrial investment and stimulating capital formation to accelerate
the process of economic growth.
* Goldsmith said that " A case for the
hypothesis that the separation of the functions of savings and
investment which is made possible by the introduction of financial
instruments as well as enlargement of the range of financial assets
which follows from the creation of financial institutions increase the
efficiency of investments and raise the ratio of capital formation to
national production and financial activities and through these two
channels increase the rate of growth"
* The financial system has
been identified as the most catalyzing agent for growth of the
economy, making it one of the key inputs of development.
* The Indian financial system is broadly classified into two broad
groups: (i) Organised sector and (ii) unorganised sector.
* Financial institutions sell their services to households, businesses and
government. They are the users of the financial services.
* With around two-third share in the total assets
in the financial system, banks play an important role.
* The organised financial system comprises the following sub-systems:
1. Banking system
2. Cooperative system
3. Development Banking system
(i) Public sector
(ii) Private sector
4.Money markets and
5. Financial companies/institutions.
* Unorganised Financial System is
not directly amenable to control by the Reserve Bank of India (RBI).
* There are a lots of financial companies, investment companies, chit
funds etc., which are also not regulated by the RBI or the government
in a systematic manner.
* Hundi were used to finance local trade as well as
trade between port towns and inland centers of production.
* Indigenous bankers combined banking with other activities, such as
the goldsmiths, merchants, and shippers of eighteenth and nineteenth century Europe had done.
* Indigenous
bankers often endorsed hundis issued by traders and sometimes
provided personal guarantees for loans from commercial banks.
* Indigenous banking was based on an elaborate and extensive network of personal relations that overcame the problems of dealing with a large number of customers.
* Rural financial system has been evolved over a period of time from the
year 1904, when the first Primary Agricultural Credit Society was
organized, by accepting and implementing important recommendations
of expert committees appointed by the Government of India from
time to time.
* The primary cooperative credit society is an association of borrowers
and non-borrowers residing in a particular locality.
* The funds of the primary cooperative credit society are derived from the share capital and deposits of members and
loans from Central Co-operative banks.
* Money market is concerned with the supply and the demand for
investible funds.
* Money market provides a mechanism by which short-term funds are
lent out and borrowed; it is through this market that a large part of the
financial transactions of a country are cleared.
* The money market is generally expected
to perform following three broad functions: (i) To provide an equilibrating mechanism to even out
demand for and supply of short term funds.
(ii) To provide a focal point for Central bank intervention for
influencing liquidity and general level of interest rates in
the economy.
(iii) To provide reasonable access to providers and users of
short-term funds to fulfill their borrowing and investment
requirements at an efficient market clearing price.
* In the area of capital market, the Securities and Exchange Board of
India (SEBI) was set up in 1992 to protect the interests of investors in
securities and to promote development and regulation of the securities
market.
* SEBI has issued guidelines for primary markets, stipulating
access to capital market to improve the quality of public issues,
allotment of shares, private placement, book building, takeover of
companies and venture capital.
* In the area of secondary markets,
measures to control volatility and transparency in dealings by
modifying the badla system, laying down insider regulations to protect
integrity of markets, uniform settlement, introduction of screen-based
online trading, dematerialising shares by setting up depositories and
trading in derivative securities (stock index futures).
*
