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Indian Financial System

Notes
Figure 1.1 Overview of Financial System
Financial System

Savings Finance Investment

Capital Formation

Economic Growth

1.1 Components/Key Elements of Indian Financial System

The financial system consists of the Central Bank, as the apex financial institution, other regulatory
authorities, financial institutions, markets, instruments, a payment and settlement system, a
legal framework and regulations. The financial system carries out the vital financial
intermediation function of borrowing from surplus units and lending to deficit units. The legal
framework and regulators are needed to monitor and regulate the financial system. The payment
and settlement system is the mechanism through which transactions in the financial system are
cleared and settled.
Figure 1.2: Components of a Financial System

Financial System

Financial Assets/Instruments Financial Markets Financial Intermediaries

Forex Market Capital Market Money Market Credit Market

Primary Market
Secondary Market

Money Market Instruments Capital Market Instruments Hybrid Instruments

 Regulatory Authorities
 Financial Institutions

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