B Com Exam > B Com Notes > Financial Markets and Institutions > Indicators of Financial Development - Financial Markets and Institutions
Indicators of Financial Development - Financial Markets and Institutions | Financial Markets and Institutions - B Com PDF Download
What constitute the financial development is generally discussed by pointing out the in the financial institution in the financial structure of the developed and developing countries. Based on this approach some researcher have used one or more indicator to denote the degree of financial development.
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Finance ration
The ratio of total issues of primary and secondary claim to national income
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Financial Inter -relation ratio
The ratio of financial assets to physical assets in the economy.
- Intermediation ratio
The ratio of secondary issue to primary issue ,which indicates the extent of development of financial institution
as mobilizers of funds relative to real sectors as direct mobilizers of funds.It indicate institutionalization of financial activity in the economy.
- The ratio of money to income
Higher the ratio greater the financial development because it indicate the extent of monetization and size of exchange economy in the nation.
- Developed Financial sector is fully integrated domestically as well as internationally .In such system risk adjusted rate of return doesn’t differ significantly in respect of investor as well as saver.
- The lower the transaction and information cost ,the higher the financial development.
- A developed financial structure is characterized by presence of strong ,active ,large sized non banking financial sector comprising stock market ,debt market ,insurance companies ,pension fund ,mutual fund etc.
- The greater the financial development ,the greater the openness of the economy reflected in high level of current account openness/convertibility ,minimum restriction on foreign ownership of assets and repatriation of earning and absence of parallel foreign exchange market.
- In a developed financial system ,private banking not the public sector banking is predominant .
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FAQs on Indicators of Financial Development - Financial Markets and Institutions - Financial Markets and Institutions - B Com
| 1. What are financial markets and institutions? |  |
Ans. Financial markets are platforms where buyers and sellers trade financial assets such as stocks, bonds, commodities, and currencies. Financial institutions, on the other hand, are organizations that provide financial services to individuals, businesses, and governments. They include commercial banks, investment banks, insurance companies, mutual funds, and pension funds.
| 2. How do financial markets contribute to financial development? | |
Ans. Financial markets play a crucial role in financial development by providing a mechanism for the efficient allocation of funds in the economy. They facilitate the flow of funds from savers to borrowers, enabling businesses to invest in productive activities and individuals to meet their financial needs. Moreover, financial markets promote price discovery, liquidity, and risk-sharing, which further enhance overall economic growth and stability.
| 3. What are some indicators of financial development? | |
Ans. Indicators of financial development include the size of financial markets (measured by market capitalization and total value of financial assets), the depth of markets (measured by trading volume and turnover ratio), the efficiency of markets (measured by bid-ask spreads and transaction costs), and the accessibility of financial services (measured by the number of bank branches and ATMs per capita).
| 4. How do financial institutions contribute to financial development? | |
Ans. Financial institutions play a crucial role in financial development by mobilizing savings from households and channeling them into productive investments. They provide essential services such as intermediation, risk management, and payment systems. Financial institutions also contribute to financial stability by monitoring and managing risks, providing liquidity during crises, and facilitating efficient capital allocation.
| 5. What are the benefits of financial development for an economy? | |
Ans. Financial development brings several benefits to an economy. It promotes economic growth by facilitating savings mobilization, efficient allocation of resources, and technological innovation. It also improves income distribution by providing access to financial services for underserved populations. Furthermore, financial development enhances financial stability by reducing information asymmetry, mitigating risks, and enhancing the resilience of the financial system. Overall, financial development contributes to the overall well-being and prosperity of a nation.
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