logging in or signing up Indian Financial System farhana2105 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1430 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: October 14, 2009 This Presentation is Public Favorites: 1 Presentation Description No description available. Comments Posting comment... By: shahema (2 month(s) ago) plz mail me .... Saving..... Post Reply Close Saving..... Edit Comment Close By: himanshuraizada (20 month(s) ago) respected sir i want to increase my knowledge by this ppt plz send it soonly Saving..... Post Reply Close Saving..... 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Functions of Financial system : Functions of Financial system Payment system Pooling of funds Transfer of resources Slide 5: Risk management Price information for Decentralised Decision making Dealing with Incentive problem Money Market : Money Market The money market is a market for short term funds – up to one year maturity. It covers money, and financial assets that are close substitutes for money. RBI is the most important participant in the money market. The Discount and Finance House of India (DFHI) : The Discount and Finance House of India (DFHI) The DFHI was set up in April 1988 To develop a secondary market in the existing money market instruments by providing adequate liquidity support DFHI’s activities are restricted to: : DFHI’s activities are restricted to: Dealing in 91 days and 364 days Treasury Bills Re-discounting short term commercial bills Participating in the inert bank call money, notice money and term deposits Dealing in Commercial Paper and Certificate of deposits. Liquidity Adjustment Facility : Liquidity Adjustment Facility History ILAF (1999) – LAF (2000) Need for Repo and Reverse Repo Transactions (Repo: Infuse liquidity; Rev Repo: Mop up excess liquidity) Repo Rate: 4.75%; Rev Repo Rate: 3.25% Procedure followed by RBI. Negotiated Dealing System (NDS) SLR securities and/or Treasury Bills Multiples of Rs. 5 Cr Auction Conducted “Daily and 14 Day intervals” Repurchase Agreements (Repo) : Repurchase Agreements (Repo) Short-term interest bearing loan against collateral. Spot sale of an asset coupled with a simultaneous forward purchase of the same asset. Borrower – Lender Dealing Borrowing is at the repo rate Collateralised lending Transfer of title Repo – RevRepo Relationship Repo Market Sans RBI : Repo Market Sans RBI Restricted to primary market Secondary intermediaries – Rev Repo as lenders – in past Major Lenders: Mutual Funds, Financial Institutions and Insurance companies Major Borrowers: Primary Dealers and Scheduled Banks Dated securities used are issued by: Central Government T-Bills State Government securities – Limited extent Risks in Repo Dealing : Risks in Repo Dealing Credit Risk Legal Risk Operational Risk Market Risks Benefits And Usages Of Repo: : Benefits And Usages Of Repo: The repo market increases the utility of government securities One of the primary usages of repo for market players is for funding Repo transaction can be used for arbitrage activity Slide 15: It is also used for speculative activity An active repo market leads to an increase in turnover in the money market The Repo Market – A Tool For Achieving Monetary Policy: : The Repo Market – A Tool For Achieving Monetary Policy: The LAF Is the principal monetary policy instrument for managing short term liquidity and thus short term interest rates in the economy Reverse-repo rate attempts to provide the floor to the movement of call rates and holds all other short-term rates in reasonable alignment with the reverse-repo rate Slide 17: The RBI also uses the Open Market Operations (OMO) for directly intervening in the market directly by buying and selling securities and thereby managing the liquidity and the short term interest rates in the market CBLO : CBLO Collateralized Borrowing and Lending Obligation – A money market instrument developed by Clearing Corporation of India Ltd. (CCIL) Participants are required to open constituent SGL accounts with CCIL CCIL fixes borrowing limits CCIL becomes the counterparty to every CBLO transaction Characteristics of CBLO : Characteristics of CBLO Liquidity Accessibility Acceptability Availability for different tenors Credit Risk Call/Notice Money Market: : Call/Notice Money Market: In this market, banks and primary dealers (PDs) are allowed to both borrow and lend This market is purely an unsecured market as no collaterals are offered for securing the lending/borrowing Call/Notice money is designed for management of liquidity for a very short period of time. Participants : Participants Participants in call/notice money market currently include banks and Primary Dealers (PDs), both as borrowers and lenders. Non Bank finance institutions are not permitted in the Call/Notice money market from August 6, 2005 Interest rate : Interest rate Eligible participants are free to decide on interest rates in call/notice money market. Calculation of interest payable would be based on FIMMDA’s (Fixed Income Money Market and Derivatives Association of India) Handbook of Market Practices. Dealing session : Dealing session Deals in the call/notice money market can be done upto 5.00 pm on weekdays and 2.30 pm on Saturdays or as specified by RBI from time to time. Term MarketLonger end of Money Market : Term MarketLonger end of Money Market Money lent for 15 days to 1 year is called Term money Advantage - reduce interest rate, liquidity or funding risk Funding long term assets with overnight liabilities Need for credible pricing benchmarks MIBOR and BIBOR - cannot price your assets on overnight rates Overdrafts - Term Loan – Floating rate – Fixed rate MIBOR (Mumbai Interbank Offered rate) : MIBOR (Mumbai Interbank Offered rate) NSE MIBOR has been designed to give the overnight clean reference rate and generally tracks the call market. The basic design behind the said rate is the polling methodology– rates are polled from the traders over phone as to what rate they would quote to borrow or lend Rs.500million in the overnight call money market. It is also equivalent to the daily call rate, or the overnight rate at which funds can be borrowed, and it changes every day, depending on the perception of the market players on interest rates. Financial Assets : Financial Assets A 10 year bond A 7 year non-convertible debenture A 3 year car loan Equity shares issued by NIIT to the general investing public through an initial public offering A call option granted by Infosys technologies limited to an employee that gives him the right to buy 100 shares of Infosys at an exercise price of Rs. 1500 Debt versus equity claims : Debt versus equity claims Some securities straddle both the categories. For eg preference share represent an equity claim that entitles the owner to get a fixed rupee amount. Financial Intermediaries : Financial Intermediaries They are firms that provide services and products that customers may not be able to get more efficiently by themselves in financial markets. Rationale for Financial Intermediaries : Rationale for Financial Intermediaries Diversification Lower transaction cost Economies of Scale Confidentiality Signaling Key Financial Intermediaries : Key Financial Intermediaries Commercial Banks: They represent the most important financial intermediary in the Indian financial system Financial Institutions: They have been set up to cater to the long-term financing needs of the industrial sector and meet specialized financing requirements Slide 31: Insurance Companies: Insurance companies have massive resources at their command Mutual Funds: A mutual fund is a collective investment vehicle Slide 32: Non-banking Financial Companies: These companies engage in a variety of activities like leasing finance, housing finance, etc. Non-banking Financial Services Companies: This group consists of merchant banks, credit rating agencies, depositories, and others Rates : Rates Bank Rate: 6% Repo Rate: 4.75% Rev Repo Rate: 3.25% CRR: 5% SLR: 24% Savings Bank Rate: 3.5% Deposit Rate: 7.5% - 9.6% Money Market Rates Call Rate: 2.25% - 4.3% Slide 34: Regulators and other Agencies Reserve Bank of India (RBI) The Clearing Corporation of India (CCIL) Fixed Income, Money Market and Derivatives Association of India (FIMMDA) Reserve Bank of India (RBI) : Reserve Bank of India (RBI) Monetary Authority Financial Supervision Manager of Foreign Exchange Issuer of currency Developmental roll The Clearing Corporation of India (CCIL) : The Clearing Corporation of India (CCIL) Providing exclusive clearing and settlement of transactions commenced operations on February 15, 2002 launched the Collateralised Borrowing and Lending Obligation (CBLO) in January 2003 FX-CLEAR- August 7, 2003 NDS-OM and NDS-CALL Fixed Income, Money Market and Derivatives Association of India (FIMMDA) : Fixed Income, Money Market and Derivatives Association of India (FIMMDA) An association- June 3rd, 1998 FIMMDA's represents Market Players Undertake developmental activities Provide training and development An arbitrator for disputes Thank you! : Thank you! 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Indian Financial System farhana2105 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1430 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: October 14, 2009 This Presentation is Public Favorites: 1 Presentation Description No description available. Comments Posting comment... By: shahema (2 month(s) ago) plz mail me .... Saving..... Post Reply Close Saving..... Edit Comment Close By: himanshuraizada (20 month(s) ago) respected sir i want to increase my knowledge by this ppt plz send it soonly Saving..... Post Reply Close Saving..... Edit Comment Close By: ramanishilpakalubhai (20 month(s) ago) very nice presentation may i take in my email myid is shilpa_ramani1@yahoo.in Saving..... Post Reply Close Saving..... Edit Comment Close By: gondaliya.varsha (30 month(s) ago) very nice presentation...may i have it in my inbox pls?????? my ID is gondaliya.varsha@gmail.com Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript The Financial System : The Financial System Group Members (MMS Finance) : Group Members (MMS Finance) Asiya Shaikh (25) Douglas Morris (35) Farhana Ansari (37) Imad Faquih(48) Imtiyaz Siddique (51) Jayshree Iyer (54) Financial System : Financial System Financial system comprises of variety of intermediaries, market and instruments. Financial system help in allocation of resources. Financial manager negotiates loan from financial intermediaries, raises resources and invest surplus fund in financial instrument. Functions of Financial system : Functions of Financial system Payment system Pooling of funds Transfer of resources Slide 5: Risk management Price information for Decentralised Decision making Dealing with Incentive problem Money Market : Money Market The money market is a market for short term funds – up to one year maturity. It covers money, and financial assets that are close substitutes for money. RBI is the most important participant in the money market. The Discount and Finance House of India (DFHI) : The Discount and Finance House of India (DFHI) The DFHI was set up in April 1988 To develop a secondary market in the existing money market instruments by providing adequate liquidity support DFHI’s activities are restricted to: : DFHI’s activities are restricted to: Dealing in 91 days and 364 days Treasury Bills Re-discounting short term commercial bills Participating in the inert bank call money, notice money and term deposits Dealing in Commercial Paper and Certificate of deposits. Liquidity Adjustment Facility : Liquidity Adjustment Facility History ILAF (1999) – LAF (2000) Need for Repo and Reverse Repo Transactions (Repo: Infuse liquidity; Rev Repo: Mop up excess liquidity) Repo Rate: 4.75%; Rev Repo Rate: 3.25% Procedure followed by RBI. Negotiated Dealing System (NDS) SLR securities and/or Treasury Bills Multiples of Rs. 5 Cr Auction Conducted “Daily and 14 Day intervals” Repurchase Agreements (Repo) : Repurchase Agreements (Repo) Short-term interest bearing loan against collateral. Spot sale of an asset coupled with a simultaneous forward purchase of the same asset. Borrower – Lender Dealing Borrowing is at the repo rate Collateralised lending Transfer of title Repo – RevRepo Relationship Repo Market Sans RBI : Repo Market Sans RBI Restricted to primary market Secondary intermediaries – Rev Repo as lenders – in past Major Lenders: Mutual Funds, Financial Institutions and Insurance companies Major Borrowers: Primary Dealers and Scheduled Banks Dated securities used are issued by: Central Government T-Bills State Government securities – Limited extent Risks in Repo Dealing : Risks in Repo Dealing Credit Risk Legal Risk Operational Risk Market Risks Benefits And Usages Of Repo: : Benefits And Usages Of Repo: The repo market increases the utility of government securities One of the primary usages of repo for market players is for funding Repo transaction can be used for arbitrage activity Slide 15: It is also used for speculative activity An active repo market leads to an increase in turnover in the money market The Repo Market – A Tool For Achieving Monetary Policy: : The Repo Market – A Tool For Achieving Monetary Policy: The LAF Is the principal monetary policy instrument for managing short term liquidity and thus short term interest rates in the economy Reverse-repo rate attempts to provide the floor to the movement of call rates and holds all other short-term rates in reasonable alignment with the reverse-repo rate Slide 17: The RBI also uses the Open Market Operations (OMO) for directly intervening in the market directly by buying and selling securities and thereby managing the liquidity and the short term interest rates in the market CBLO : CBLO Collateralized Borrowing and Lending Obligation – A money market instrument developed by Clearing Corporation of India Ltd. (CCIL) Participants are required to open constituent SGL accounts with CCIL CCIL fixes borrowing limits CCIL becomes the counterparty to every CBLO transaction Characteristics of CBLO : Characteristics of CBLO Liquidity Accessibility Acceptability Availability for different tenors Credit Risk Call/Notice Money Market: : Call/Notice Money Market: In this market, banks and primary dealers (PDs) are allowed to both borrow and lend This market is purely an unsecured market as no collaterals are offered for securing the lending/borrowing Call/Notice money is designed for management of liquidity for a very short period of time. Participants : Participants Participants in call/notice money market currently include banks and Primary Dealers (PDs), both as borrowers and lenders. Non Bank finance institutions are not permitted in the Call/Notice money market from August 6, 2005 Interest rate : Interest rate Eligible participants are free to decide on interest rates in call/notice money market. Calculation of interest payable would be based on FIMMDA’s (Fixed Income Money Market and Derivatives Association of India) Handbook of Market Practices. Dealing session : Dealing session Deals in the call/notice money market can be done upto 5.00 pm on weekdays and 2.30 pm on Saturdays or as specified by RBI from time to time. Term MarketLonger end of Money Market : Term MarketLonger end of Money Market Money lent for 15 days to 1 year is called Term money Advantage - reduce interest rate, liquidity or funding risk Funding long term assets with overnight liabilities Need for credible pricing benchmarks MIBOR and BIBOR - cannot price your assets on overnight rates Overdrafts - Term Loan – Floating rate – Fixed rate MIBOR (Mumbai Interbank Offered rate) : MIBOR (Mumbai Interbank Offered rate) NSE MIBOR has been designed to give the overnight clean reference rate and generally tracks the call market. The basic design behind the said rate is the polling methodology– rates are polled from the traders over phone as to what rate they would quote to borrow or lend Rs.500million in the overnight call money market. It is also equivalent to the daily call rate, or the overnight rate at which funds can be borrowed, and it changes every day, depending on the perception of the market players on interest rates. Financial Assets : Financial Assets A 10 year bond A 7 year non-convertible debenture A 3 year car loan Equity shares issued by NIIT to the general investing public through an initial public offering A call option granted by Infosys technologies limited to an employee that gives him the right to buy 100 shares of Infosys at an exercise price of Rs. 1500 Debt versus equity claims : Debt versus equity claims Some securities straddle both the categories. For eg preference share represent an equity claim that entitles the owner to get a fixed rupee amount. Financial Intermediaries : Financial Intermediaries They are firms that provide services and products that customers may not be able to get more efficiently by themselves in financial markets. Rationale for Financial Intermediaries : Rationale for Financial Intermediaries Diversification Lower transaction cost Economies of Scale Confidentiality Signaling Key Financial Intermediaries : Key Financial Intermediaries Commercial Banks: They represent the most important financial intermediary in the Indian financial system Financial Institutions: They have been set up to cater to the long-term financing needs of the industrial sector and meet specialized financing requirements Slide 31: Insurance Companies: Insurance companies have massive resources at their command Mutual Funds: A mutual fund is a collective investment vehicle Slide 32: Non-banking Financial Companies: These companies engage in a variety of activities like leasing finance, housing finance, etc. Non-banking Financial Services Companies: This group consists of merchant banks, credit rating agencies, depositories, and others Rates : Rates Bank Rate: 6% Repo Rate: 4.75% Rev Repo Rate: 3.25% CRR: 5% SLR: 24% Savings Bank Rate: 3.5% Deposit Rate: 7.5% - 9.6% Money Market Rates Call Rate: 2.25% - 4.3% Slide 34: Regulators and other Agencies Reserve Bank of India (RBI) The Clearing Corporation of India (CCIL) Fixed Income, Money Market and Derivatives Association of India (FIMMDA) Reserve Bank of India (RBI) : Reserve Bank of India (RBI) Monetary Authority Financial Supervision Manager of Foreign Exchange Issuer of currency Developmental roll The Clearing Corporation of India (CCIL) : The Clearing Corporation of India (CCIL) Providing exclusive clearing and settlement of transactions commenced operations on February 15, 2002 launched the Collateralised Borrowing and Lending Obligation (CBLO) in January 2003 FX-CLEAR- August 7, 2003 NDS-OM and NDS-CALL Fixed Income, Money Market and Derivatives Association of India (FIMMDA) : Fixed Income, Money Market and Derivatives Association of India (FIMMDA) An association- June 3rd, 1998 FIMMDA's represents Market Players Undertake developmental activities Provide training and development An arbitrator for disputes Thank you! : Thank you!