Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products. This paper discusses the meaning of finance and Indian Financial System and focus on the financial markets, financial intermediaries and financial instruments. The brief review on various money market instruments are also covered in this study.
The term “finance” in our simple understanding it is perceived as equivalent to ‘Money’. We read about Money and banking in Economics, about Monetary Theory and Practice and about “Public Finance”. But finance exactly is not money, it is the source of providing funds for a particular activity. Thus public finance does not mean the money with the Government, but it refers to sources of raising revenue for the activities and functions of a Government. Here some of the definitions of the word ‘finance’, both as a source and as an activity i.e. as a noun and a verb.
The American Heritage® Dictionary of the English Language, Fourth Edition defines the term as under-
1:”The science of the management of money and other assets.”;
2: “The management of money, banking, investments, and credit. “;
3: “finances Monetary resources; funds, especially those of a government or corporate body”
4: “The supplying of funds or capital.”
Finance as a function (i.e. verb) is defined by the same dictionary as under-
1:”To provide or raise the funds or capital for”: financed a new car
2: “To supply funds to”: financing a daughter through law school.
3: “To furnish credit to”.
Another English Dictionary, “WordNet ® 1.6, © 1997Princeton University ” defines the term as under-
1:”the commercial activity of providing funds and capital”
2: “the branch of economics that studies the management of money and other assets”
3: “the management of money and credit and banking and investments”
The same dictionary also defines the term as a function in similar words as under-
1: “obtain or provide money for;” ” Can we finance the addition to our home?”
2:”sell or provide on credit ”
All definitions listed above refer to finance as a source of funding an activity. In this respect providing or securing finance by itself is a distinct activity or function, which results in Financial Management, Financial Services and Financial Institutions. Finance therefore represents the resources by way funds needed for a particular activity. We thus speak of ‘finance’ only in relation to a proposed activity. Finance goes with commerce, business, banking etc. Finance is also referred to as “Funds” or “Capital”, when referring to the financial needs of a corporate body. When we study finance as a subject for generalising its profile and attributes, we distinguish between ‘personal finance” and “corporate finance” i.e. resources needed personally by an individual for his family and individual needs and resources needed by a business organization to carry on its functions intended for the achievement of its corporate goals.
INDIAN FINANCIAL SYSTEM
The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector. While performing their activities these units will be placed in a surplus/deficit/balanced budgetary situations.
There are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities.
Financial System;
