Institutional finanace Unit-5 T Y BBA
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Transcript of Institutional finanace Unit-5 T Y BBA
Institutional FinanceBy Radhika
Financial System
• Plays a Vital role in economy• Bridges the gap between…• Channelize/ mobilize the vital resources
Financial System
Supplier of Funds
IndividualsBusinessGovernment
Financial Market
Money MarketCapital Market
Financial Intermediaries
Commercial BanksInsurance CompanyMutual FundsNon-banking financial co.
Demander of Funds
IndividualsBusinessGovernment
SECURITIES
LOANSDEPOSITES/SHARE
FUNDS
FUNDSFUNDS
SECURITIES
FUNDS
Financial intermediaries • Commercial Banks– Public Sector Banks– Foreign Banks– Private Sector Banks
• Financial Institutions– IFCI– SIDBI– ICICI– NABARD
Cont.• Insurance Companies
LIC GIC Private sectors
Cont.• Mutual Funds– It is financial intermediary that collect savings from
investors– Different types of investment– Pool of funds from investors– Advantages of mutual funds are reduction in risk,
expert professional mgt., liquidity of investment & tax benefits
– SEBI (Mutual Funds) Regulation, 1993
Cont.• Non-banking Financial Intuitions [NBCI/NBFC]• According to RBI,– NBFC means;
i. a financial institution which is a co.;
ii. a non-banking inst. whiz a co. & has, as its principal business, the receiving of deposits under the scheme or mgt. or any other manner or lending in any manner;
iii. such other non-banking institution or class of such inst. as the bank may with the previous approval of the Central Govt. specify
Cont.• NBFC are Categorized into:– An equipment leasing co. [EL]– A hire-purchase co. [HP]– A housing finance co. [HFC]– An investment co. [IC]– A loan co. [LC]– A mutual benefit co. [MBFC] i.e Nidhi Companies– A miscellaneous non-banking co. i.e Chit fund co.
Money Market• Introduction • It is a whole sale market• No need of place• Transactions generally settled in daily basis• Important Segment• Market for monetary assets of a shot-term nature• Money market instruments have the characteristic of
liquidity
Money Market instruments 1. Treasury Bills– One of the safest instruments– Short term borrowing instruments of Central Govt.
issued by…– Zero Risk instruments hence…– Short term securities that will mature... – Issued at discounted rate and with promise to pay
full face vale on maturity– Generally available in minimum of 25K & in
multiples thereof
Cont.• Currently, T-bills are generally available in– 91-Day T-bills - auctioned every Friday– 182- Day T-bills - auctioned every alternate Wed.– 364-Day
• Types of T-bills– On Tap Bills– Ad-hoc Bills– Auctioned Bills
Cont.2. Commercial Paper [CP] – It is an unsecured short term promissory note issued
by creditworthy corporate, primary dealers & all financial inst.
– basically negotiable & transferrable by…– Fixed maturity period– Issued to meet w.c requirements of the firms– Also known as Finance Paper, Industrial Paper or
Corporate Paper
Cont.
– RBI introduced commercial papers in 1990– CP can be issued to banks, individuals, companies &
other registered bodies– It can also be issued to NRI but…– FII are also permitted to subscribe but to a certain
limit fixed by SEBI
Cont.3. Commercial Bills– CB are negotiable instruments drawn by the seller on
the buyer which, are in turn, accepted & discounted by Commercial Banks
– These are basically called trade bills & when these bills are accepted by commercial banks, they called..
– Bank accepts the bill from the seller & pays the amount of the bill after charging some discount.
– after expiry of the bill collected from the buyer...
Cont.–Meanwhile, if the bank requires fund then it can also
re-discount the same with RBI,UTI,LIC,ICICI etc.–Maturity period varies from 30 to 180 days.– Example:• Bill Amt. – rs. 10000• Discount - 2%• Payment made by Bank to seller – 9800• Payment received by bank from buyer – rs.10000• Commission earned by bank – rs. 200
Cont.
• Seller
Trade Bill
Cont.• Major Types of Commercial Bills
I. Demand Bill v/s Usance Bill
II. Inland Bill v/s Foreign Bill
III. Export Bill v/s Import Bill
Cont.4. Call/ Notice Money:• Call Money Market– It is a short term funds market with maturity period 1
day to 2 weeks– Call money– Notice money–Main aim of growth of this instrument is due to
commercial banks requirements
Cont.– To fulfill mandatory requirements of RBI
commercial banks borrow money from the other banks & institutions
– The interest rate paid on the call/notice money loan is called “CALL RATE”
Cont.5. Certificate of Deposit– It was introduced in 1989– CDs are unsecured, negotiable, short term
instruments in bearer form issued by commercial banks & financial institutions
– Generally CD are time deposits (FD)– CD are transferable & tradable while FD are not.– It can be issued to all even to NRI.
Capital Market• To achieve growth in various sectors• To meet the requirements of various investors, borrower
& entrepreneurs• A platform for investors to get greater returns• Provide funds to the Organization to get developed• Buying and selling of long-term debt or equity-
backed securities• Provides effective & efficient way to support exchange
of various financial instruments for mutual benefit.
Primary Market
Cont.
Primary market
IPO
Right Issue
Private Placem-ents
Offer for Sale
Issue of Tender
Secondary market
Cont.• Secondary market popularly known as stock market• Where outstanding or existing securities are purchased
& sold on a continuous basis• Unlike primary markets it facilitates changing of hands
(ownership)• Securities issued in primary market are traded• Like ordinary market where there is buyer & seller• Likewise the prices will be determined by the demand
& supply forces
Cont.• Distinguishing feature
• In India Secondary market functions as a recognized stock exchanges operating under certain rules & regulations duly approved by the government.
• Thus, these stock exchanges constitute an organized mechanism under which various public & private securities are traded.
Functions of Secondary market1. Marketability
2. Safety
3. Performance check
4. Valuation
5. Promotion & development
Nature & Role Of Financial System• Mobilizing funds to productivity• Provides excellent mechanism for exchange of goods
&services• Establishment of different institutions• Crucial role in reducing risk