Question – 01)
What is the structure of the Indian financial system and how does it function?
                                                                                   Or
           What are the different components of the Indian financial system and how do they     function?
The Indian financial system is composed of various institutions, markets, and regulators that work together to provide financial services to individuals, businesses, and the government. The main components of the Indian financial system are:
- Financial Institutions: These are the entities that offer financial services such as banking, insurance, and mutual funds. The Reserve Bank of India (RBI) is the central bank of the country and regulates the functioning of banks and financial institutions.
- Financial Markets: These are the platforms where financial assets such as stocks, bonds, and commodities are bought and sold. The major financial markets in India include the Bombay Stock Exchange (BSE), National Stock Exchange (NSE), and Commodity Exchange.
- Financial Instruments: These are the instruments that are used for raising funds such as equity shares, debentures, bonds, and derivatives.
- Financial Services: These are the services that are provided by financial institutions such as loans, deposits, insurance, and investment services.
The Indian financial system functions through various mechanisms such as:
- Monetary Policy: The RBI regulates the monetary policy of the country to maintain price stability and promote economic growth.
- Fiscal Policy: The government formulates fiscal policies to regulate the economy and achieve its socio-economic objectives.
- Banking System: The banking system in India is divided into commercial banks, cooperative banks, and regional rural banks. Banks play a critical role in providing credit and other financial services to individuals and businesses.
- Capital Market: The capital market in India comprises the primary market and the secondary market. Companies raise funds through the primary market by issuing securities, and the secondary market facilitates the trading of these securities.
- Insurance Industry: The insurance industry in India is regulated by the Insurance Regulatory and Development Authority (IRDA). Insurance companies provide various types of insurance policies such as life insurance, health insurance, and general insurance.
- Mutual Funds: Mutual funds are investment vehicles that pool money from multiple investors to invest in various financial instruments. The Securities and Exchange Board of India (SEBI) regulates the mutual fund industry in India.
In summary, the Indian financial system is a complex network of institutions, markets, and regulators that work together to provide financial services to various stakeholders. The system functions through various mechanisms such as monetary policy, fiscal policy, banking system, capital market, insurance industry, and mutual funds.