Components, Indian Financial system Video Lecture | Indian Financial System - B Com

Ans. The Indian financial system is composed of various components, including financial institutions, financial markets, and financial instruments. Financial institutions such as banks, insurance companies, and non-banking financial companies (NBFCs) play a crucial role in mobilizing savings and providing credit to individuals and businesses. Financial markets, on the other hand, facilitate the buying and selling of financial assets such as stocks, bonds, and derivatives. Lastly, financial instruments refer to the various tools or contracts used to represent financial assets, including bank accounts, mutual funds, and insurance policies.

Ans. The Indian financial system plays a significant role in promoting economic growth by channelizing savings into productive investments. Financial institutions mobilize savings from individuals and businesses and allocate them to productive sectors through loans and investments. This enables businesses to expand their operations, create employment opportunities, and contribute to overall economic development. Additionally, the financial system provides a platform for individuals and companies to manage risks, raise capital, and engage in financial transactions, thus facilitating economic growth.

Ans. Banks are a vital component of the Indian financial system and perform several crucial functions. They facilitate the intermediation process by accepting deposits from individuals and businesses and providing loans and credit to borrowers. Banks also act as payment intermediaries, allowing individuals and companies to make transactions through various means such as checks, debit cards, and online transfers. Furthermore, banks play a role in promoting financial inclusion by providing basic banking services to the underserved sections of society and supporting government initiatives such as the Pradhan Mantri Jan Dhan Yojana.

Ans. Financial markets in the Indian financial system provide a platform for the buying and selling of various financial assets. These markets include the stock market, bond market, commodities market, and currency market. Investors can participate in these markets by purchasing or selling securities, commodities, or currencies, depending on their investment goals and risk appetite. The prices of these assets are determined by market forces of supply and demand. The financial markets also facilitate price discovery, liquidity, and transparency, ensuring efficient allocation of capital and fostering economic growth.

Ans. A well-developed financial system in India offers several advantages. Firstly, it promotes savings and investment by providing a safe and efficient platform for individuals and businesses to park their surplus funds and earn returns. Secondly, it facilitates capital formation by channelizing savings into productive investments, which leads to increased employment, income, and economic growth. Thirdly, a robust financial system enhances financial stability by mitigating risks, ensuring proper risk management, and maintaining the stability of the overall economy. Finally, it promotes financial inclusion by extending financial services to underserved sections of society, thus reducing income inequalities and promoting inclusive growth.