RBI and Financial System Financial System

Transcript:RBI and Financial System Financial System:
RBI and Financial System Financial System According to Robertson “ the primary function of the financial system is to provide a link between savings and investment for the creation of new wealth and to permit portfolio adjustment in the creation of new wealth and to permit portfolio adjustment in the composition of the existing wealth” Financial system helps to mobilize savings, promote capital formation and accelerate economic growth and development. Financial system thus refers to the structures and services provided by the various constituents related to mobilization and allocation of funds. Structure/Constituents/Components of the Financial System Financial institutions :- A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. Financial institutions encompass a broad range of business operations within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers. Financial institutions can vary by size,scope, and geography. Financial markets Functions of Financial System It serves as a link bety those who save and those who invest. It offers a variety of instruments and options to savers to earn good return for their savings .Variety and diversity of instruments provide ample choice to the customers. Money market , capital market and various financial instruments help the corporates, government and others to mobilize capital for investments Competition among the various institutions increases the supply of capital and reduces the cost of capital required by the investors.This results in increase in production of goods and services The various financial instruments with different duration,returns enable the corporates to mobilize funds according to their requirements.This also offers variety of investment opportunities to the customers Financial institutions undertake investor education campaigns regularly to create awareness about the services of the financial system.Such campaigns disseminate information about investment opportunities,risks, involved, liquidity, safety norms to be followed. Media both electronic and print are used extensively for this purpose. Through this efforts, financial system induces the savers to save more and enhances the availability of capital to the investors. Due to advancement of technology, financial system today is able to transfer funds quickly without lapse of time and value.Variety of facilities and quick transfer of funds promotes trade and commerce significantly Credit based payment system of the financial institutions facilitates exchange of goods and services on a larger scale. Financial system also helps in minimizing risks and uncertainty