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Unit 1: Financial System

1.4 Keywords Notes

Capital Market: The capital market is the market for securities, where companies and
governments can raise long-term funds.

Deposit: An account at a banking institution that allows money to be deposited and withdrawn
by the account holder.
Loan: A type of debt. Like all debt instruments, a loan entails the redistribution of financial
assets over time, between the lender and the borrower.
Money Market: That segment of the financial market in which financial instruments with high
liquidity and very short maturities are traded.

1.5 Self Assessment

Fill in the blanks:
1. RBI regulates foreign exchange under the ........................
2. A loan is a specified sum of money provided by a lender to a borrower on condition that
it is .................
3. The main purpose of the capital market is to facilitate the raising of ................ funds.
4. A ................ is a financial instrument that is linked to another specific financial instrument.
5. ................ are securities representing a portion of the ownership of a company.

6. Corporate bonds that are not backed by a specific asset are called .................
7. ................ are funds placed at financial institutions for a specified period or term.
8. Financial system performs the function of administering national, fiscal, and monetary
policy to ensure the ..................... of the economy.

9. Financial markets provide the holders of ..................... with a chance to resell or liquidate
these assets.
10. Long-term growth of financial markets is ensured through giving .................. to financial
institutions to become efficient under competition.
11. The ........................ system is the mechanism through which transactions in the financial
system are cleared and settled.

12. The debt market is also known as the ........................ Market.
13. ..................... are mainly used for transaction purposes and for the safekeeping of funds.
14. Treasury bills are government securities that have a maturity period of up to ......................
15. Corporate bonds are medium or long-term securities of ........................ sector companies.

1.6 Review Questions

1. What do you mean by financial system?

2. Is financial system synonymous to financial markets? If yes, elucidate upon the similarities.
If no, discuss the difference.
3. Examine the various components of the Indian financial system.

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