The Indian Financial System is one of the most important aspects of the economic development of our country. This system manages the flow of funds between the people (household savings) of the country and the ones who may invest it wisely (investors/businessmen) for the betterment of both the parties.
This is an important topic with respect to the various Government exams conducted in the country, and aspirants must carefully consider going through this article and prepare themselves accordingly.
In this article, you shall know about what the Indian Financial system is, its components and how it helps in the economic growth of a country. Also, get some Sample Questions on Indian Financial System further below in this article.
The services that are provided to a person by the various Financial Institutions like banks, insurance companies, pensions, funds, etc. constitute the financial system.
Given below are the features of the Indian Financial system:
The financial system of a country mainly aims at managing and governing the mechanism of production, distribution, exchange and holding of financial assets or instruments of all kinds.
Further below in this article, we shall discuss the various components of the financial system in India.
There are four main components of the Indian Financial System. This includes:
Let’s discuss each component of the system in detail.
The Financial Institutions act as a mediator between the investor and the borrower. The investor’s savings are mobilised either directly or indirectly via the Financial Markets.
The main functions of the Financial Institutions are as follows:
The best example of a Financial Institution is Bank. People with surplus amounts of money make savings in their accounts, and people in dire need of money take loans. The bank acts as an intermediate between the two.
The financial institutions can further be divided into two types:
Further, Financial Institutions can be classified into three categories:
The products which are traded in the Financial Markets are called the Financial Assets. Based on the different requirements and needs of the credit seeker, the securities in the market also differ from each other.
Some important Financial Assets have been discussed briefly below:
Services provided by Asset Management and Liability Management Companies. They help to get the required funds and also make sure that they are efficiently invested.
The financial services in India include:
The main aim of the financial services is to assist a person with selling, borrowing or purchasing securities, allowing payments and settlements and lending and investing.
The marketplace where buyers and sellers interact with each other and participate in the trading of money, bonds, shares and other assets is called a financial market.
The financial market can be further divided into four types:
(a)Corporate Securities Market
(b)Government Securities Market
(c)Long Term Loan Market
(a) Organised Money Market
(b) Unorganised Money Market
Given below are a few sample questions for the candidates to have an idea about the type of questions asked in the Government exams on the topic: Indian Financial System:
Q 1. Which of these is not a type of Capital Market?
Answer: (4) All of the Above
Q 2. Which of these is not a type of Financial Assets?
Answer: (1) Cheque
Q 3. Which of these is not a fundamental objective of Indian Financial System?
Answer: (3) Issuing Bank Notes
Q 4. When a loan is granted for only one day, it is called _________?
Answer: (4) Call Money
Questions for descriptive answers can also be asked from this topic
Ans. Broadly there are two categories of Indian Financial System, i.e. Indian Money market and Indian capital Market: