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An

Assignment
On

Financial Market and Intermediaries

Submitted to
Prof. Nikunj Patel

On

31/10/2017

In Partial fulfillment of the requirements for the


Financial Management 1 course in
MBA-FT Term 2

By
Group No.: 2
Section: B

Name of Student Roll No.


Avadhesh Bagdi 171206
Ayush Saxena 171207
Bhaumik Seta 171208
Brahmjot Singh 171209
Darshil Shah 171210

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Introduction
Financial Management and administration of money is one of the key territories in business
administration, is basically abut managing and controlling money streams of the whole business.
Also, to facilitate smooth and proper flow of money we require certain entities and these are
referred as middlemens and they deal between the parties. Here comes the role of financial
intermediaries and markets. The central motivation behind this report is to get bits of knowledge
in regards to money related intermediaries and markets, how they work, their advantages to
financial specialists, distinctive courses in which they are arranged and so on. Having a careful
information with respect to budgetary markets and its mediators will dependably help an
organization and affects its benefit.

Financial Market
Financial markets are market places which facilitates and encourages exchanging of securities
including values, securities, monetary forms, bonds, currencies, treasury bills etc. Businessman
regularly turn to financial markets when they are in desperate need of money for development
reason, venture reason and so forth. Financial markets follow a critical part in designating assets
in an economy. Money markets also plays a key role in discovering costs of financial resources.
Other than this, it gives a platform to investors and speculators to invest their monetary resources
and securities. It is not easy for an economy to work without the presence of monetary markets
and we will see its nitty gritty significance in the later piece of this report. Different stock trades
(BSE, NSE), commodity markets and so forth are basic examples of money related markets. Just
like any other market, this market is also all pervasive and operates through intervention of market
forces of demand and supply. Hence, price is determined where demand meets supply. The various
functions which are performed by Financial Markets are:
Provides a platform for investors and borrowers to meet, interact and transact.
Fast selling of assets becomes easy which ensures liquidity.
Price determination totally depends on market forces.
Provides security of dealing in financial assets.

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Financial Intermediaries
A financial market is a marketplace where exchange of financial instruments like shares,
bonds, commercial papers, treasury bills, etc. takes place. Just like any other market, this market
is also all pervasive and operates through intervention of market forces of demand and supply.
Hence, price is determined where demand meets supply. Also, almost all such markets are virtual
in nature, i.e., they dont have any defined physical place. The various functions that are performed
by such markets are:

(a) Facilitates interaction between the investors and the borrowers

(b) Prices the financial instruments as per the forces of demand and supply

(c) It provides security to dealings in financial assets

(d) Ensures liquidity by providing platform to sell such assets very quickly

(e) It ensures low cost of transactions and information

Finance related markets can frequently be considered as the gathering of every potential
purchaser and merchants of different sorts of monetary items or/and benefits alongside the
particular exchanges between them. Specifically, they give a protected and directed stage for
borrowers and loan specialists to lead exchanges between them that would be commonly
advantageous to both the parties. One may then expect, with essential comprehension of how
economy functions, that borrowers and loan specialists in a finance related market would not
exchange with each other straightforwardly but instead do as such through an operator of a specific
form and usefulness; much similarly that a man normally buys their week after week basic need at
a high street retailer as opposed to from the first makers in this modern age.
Financial intermediaries are finance organizations working in financial markets such specialists,
for borrowers and banks to exchange through them in a indirect way. As such, with respect to a
much-simplified instance of exchanging stores, a budgetary middle person gives intends to
associate surplus operators (loan specialists) and deficiency specialists (borrowers). A typical
example of a financial intermediaries would be a business bank that attracts surplus the type of
client stores and utilize these assets to issue a wide range of advances to those with deficits. In this
situation the loan specialists are adequately individuals who spare with the bank and they

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advantage from gaining premiums for their stores; in the meantime, the bank follows up on carry
on of its clients to manage borrowers.

Classification of Financial Markets


Capital Markets
Foreign Exchange Markets
Commodity Markets
Money Markets
Derivative Markets
Future Markets
Cash or Spot Market
Interbank Market

Capital Markets

The capital market is a body of financial system which raises capital by dealing in shares,
bonds, and other long-term investments. These markets are also known as the Long-Term Markets
as the money invested in these markets are mainly for a period more than one year. Capital Market
consists of two types of markets and these are Primary Market and Secondary Market. In primary
capital market newly, issued stocks and bonds are being exchanged while in secondary capital
market exchange of already existing bonds and stocks takes place. Both of the market plays a
crucial role as primary market provides you place where you can raise long term funds by issuing
shares and debentures while secondary market provides a readily available platform for those
investors who want to sell or exchange their securities. For better understanding it can be further
divided into two parts-

1) Bond Markets- The bond market, also known as debt market or credit market is a financial
market where its participants can issue new debt or buy and sell debt securities in the form of
bonds.

2) Stock Markets- The stock market, also known as equity market or share market is a
collection of buyers and sellers of stocks or shares.

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Foreign Exchange Market (Currency Markets)

Foreign exchange Market is a market where trading of currencies takes place and that is why
it is also known as currency market. The forex market is the largest, most liquid market in the
world with an average traded value that exceeds over $5 trillion per day (As per Bank for
International Settlements, as of 2016) and includes all of the currencies in the world. In the global
foreign exchange markets, the average daily turnover is continuously growing. Foreign exchange
market is the worlds largest market in terms of total cash value traded and any person can actively
participate in this market irrespective of the place from which they are trading. Digitalization and
increased use of internet has helped in increasing the easy of doing money transactions as now you
can trade in securities in just one click.

Commodity Market

A commodity market is a market that rather than manufactured products, trades in primary
economic sector. It includes soft commodities such as agricultural products and hard commodities
such as gold, oil, etc. Worldwide, investors access about 50 major commodity markets with pure
financial transactions. New York Mercantile Exchange (NYMEX), the London Metal Exchange
(LME) and the Chicago Board of Trade (CBOT) are some of the leading commodity markets in
the world.

Money Market

In this market the financial instruments are traded with very high liquidity and short maturity
time. This market is also known as market for short term fund investment, which deals in
borrowing, buying and selling with maturities that usually range from overnight to just under a
year. These investments are known as liquid investments due to their short-term maturities. A few
money market instruments include treasury bills, commercial paper, deposits, bankers
acceptances, bills of exchange, certificates of deposit, federal funds, repurchase agreements and
short lives mortgage and asset backed securities.

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Call/Notice Money

Call money is the money borrowed or lent for a very short-term which is repayable on
demand. It usually has a maturity period of one to fourteen days or overnight to fortnight. It is used
for inter-bank transactions. The money that is lent for one day in this market is known as "call
money" and, if it is lent for more than one day then it is called notice money." Any holidays or
Sundays are not considered while counting the period. These are not backed by any collateral
security.

The Commercial banks have to maintain a minimum cash balance known as the cash reserve
ratio. Call money is a method by which banks lend to each other to be able to maintain the cash
reserve ratio. The interest rate paid on call money is known as the call rate. This call rate fluctuates
on a daily basis and sometimes even fluctuates on an hourly basis. There is an inverse relationship
between call rates and other short-term money market instruments such as treasury bills and
commercial papers. A rise in call money rates makes other sources of finance, such as commercial
paper, way cheaper for banks to raise funds from.

Treasury Bill (T-bills)

Treasury bills are short term maturity promissory notes issued by a federal government as a
primary instrument for regulating money supply and raising funds through open market
operations. Here, short terms refer to a period of less than a year, more likely of 3 months. T-
bills usually do not pay any interest but are sold at a discount; their earning is usually the
difference between the purchase price and redemption price. Although their yield is lower as
compared to other securities available in the market, T-bills are very popular with institutional
investors because they are backed up by the government and have no risk and that makes up for
a very good risk-free investment. So, investors who are risk averse, always prefer go for treasury
bills.

Commercial Papers
Commercial paper is a money-market security issued usually by large corporations to acquire
or raise funds to meet short-term debt liabilities. Here, the company promises to pay the face
value of the commercial paper on the maturity date which is mentioned on the commercial paper.
Since, it is not backed by any collateral, only firms with excellent credit ratings from a recognized

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credit rating agency will be able to sell their commercial paper at a reasonable price, otherwise
the public will not be inclined towards buying a Commercial paper and risking their funds.
Commercial papers are usually sold at a discount, that is, an amount lower than their face value,
and generally carries lower interest repayment rates as compared to other bonds. This is majorly
because of the short-term maturity of commercial papers. Usually, the longer the maturity on a
note, higher the interest rate any institution will pay because otherwise it wont be profitable.
However, even with the commercial papers, interest rates fluctuate with market conditions, but
are usually way lower than banks rates prevailing in the market. The minimum maturity period
of a commercial paper is 7 days and for a company to be eligible to issue a commercial paper, it
must comply with various conditions which involves - a prescribed amount of borrowings, its
tangible net worth should not be less than Rs. 4 crores in the last audited financial statements and
also its working capital limit should not be less than Rs. 4 crores.

Certificate of Deposit
A certificate of deposit is a negotiable money market instrument and is issued in
dematerialised form in exchange of funds deposited at a bank or other eligible financial
institution for a specified period of time. These are similar to savings accounts and are perfect
for investors who are risk averse because they are completely risk-free instruments. However,
they do differ from the savings account in the sense that the Certificate of Deposit has a specific
fixed term and a fixed interest rate. The maturity term can range from 1 month to 5 years. The
bank holds the money of the customer till the maturity and post that, the customer can withdraw
both - the invested amount as well as the accrued interest. Banks usually offer a higher interest
rate to such CoD bearers as compared to the normal saving accounts customers who can
withdraw their money on demand.

Trade Bills
Trade bills are basically credit bills that are drawn by traders on each other to facilitate credit
sales. Trade bills or Bills of Exchange provides necessary liquidity to the traders as they can be
discounted from banks if the need arises.

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Derivatives Market

The derivatives market is a financial market for derivatives (a security with a price
dependent upon an asset or assets). These derivatives can be traded either as OTC (over-the-
counter) or on an exchange. The participants of this market can be classified as Hedgers,
Speculators, Margin Traders or Arbitrageurs.
Following the growing instability in the financial markets, the financial derivatives gained
prominence after 1970. In recent years, the market for financial derivatives has grown in terms of
the variety of instruments available, as well as their complexity and turnover. Moreover, people
have become more risk takers and hence prefer to invest their money in the derivative market.
Financial derivatives have changed the world of finance through the creation of innovative ways
to comprehend, measure, and manage risks.

Future Markets

Future market is a place where the participants can buy and sell futures contracts (a contract
which gives the buyer an obligation to buy and the seller an obligation to sell an asset at a set price
at a future point in time). The New York Mercantile Exchange, the Chicago Board of Trade, the
Chicago Mercantile Exchange, the Chicago Board of Options Exchange, the Chicago
Climate Futures Exchange, the Kansas City Board of Trade, and the Minneapolis Grain Exchange
are a few common examples of futures markets.

Cash or Spot Market

In the cash market, as the name suggests, goods are sold for cash and are delivered
immediately. Similarly, contracts bought and sold in the spot market are immediately effective.
Prices are settled in cash "on the spot" at current market prices. This is notably different from other
markets, in which trades are determined at forward prices. The cash markets tend to be dominated
by institutional market players such as hedge funds, limited partnerships and corporate investors.
The very nature of the products traded requires access to far-reaching, detailed information and a
high level of macroeconomic analysis and trading skills.

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Inter-Bank Market
The interbank market is the financial system and trading of currencies among banks and
financial institutions, excluding retail investors and smaller trading parties. While some interbank
trading is performed by banks on behalf of large customers, most interbank trading takes place
from the banks' own accounts.

Function of Financial intermediaries


A Financial Intermediaries, by definition, is in charge of the way toward exchanging cash
from economic agents with an excess of assets to financial specialists with a deficit of assets, and
is known as financial intermediation. This is accomplished by methods for a financial security,
for example, stocks and bonds. The system that permits the exchange of such monetary securities
is known as a financial market. Finance markets intend to encourage the raising of capital, and
also the exchange of hazard between financial specialists and furthermore universal exchange.
Commonly, the borrower will issue a receipt, or money related security, to the bank that
guarantees to pay back the capital gained up.
Financial intermediaries go-betweens exist principally to transfer funds from financial
operators with an overflow of assets, i.e. those with livelihoods more noteworthy than use, to
those specialists that have a deficit of assets, or those with earnings not as much as their
expenditure. Banks, insurance agencies and pension funds are cases of financial intermediaries.
A financial specialist could be an individual willing to contribute, or an organization,
establishment or even the legislature. The exchange of assets between these financial specialists
happens in one of two ways. The main procedure is known as direct finance. This implies the
exchange of assets from monetary specialists with surplus assets, for example, savers and
moneylenders, to those with a deficiency, or borrowers, happens by means of budgetary markets,
for example, the stock trade. The second procedure is known as indirect finance, which implies
that the exchange of assets between monetary operators does not happen specifically from loan
specialists to gets, but rather by means of a money related mediator or "middle man". Borrowers
and moneylenders tend not to take part in monetary exchanges without anyone else's input
commonly, nonetheless. This is on the grounds that monetary markets can furnish financial
operators with a reasonable value component and assessment of the resource for be exchanged.

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This normal for monetary markets is alluded to as the evaluating capacity. Additionally,
monetary markets are completely directed. Financial intermediaries with an excess of assets, or
issuers of financial securities, are along these lines ready to survey regardless of whether taking
part specifically exercises inside the commercial place is putting the estimation of their benefits
in danger. This is known as the discipline work.
Financial Intermediaries exist on the grounds that financial markets alone can't guarantee
the exchange of assets between financial operators effortlessly. There are two fundamental
obstructions that can be related to the direct finance process. The first is that it is troublesome,
tedious (and consequently costly) to coordinate the complex requirements of both the monetary
operators with surplus assets and those with a deficiency of assets. The other hindrance is
disparate financial goals of the borrowers and loan specialists. Keeping in mind the end goal to
will to exchange, loan specialists demand the minimisation of risk and general expenses brought
about, and also requiring the greatest rates of return conceivable and to have the capacity to
change over a monetary security into money effortlessly, which is known as liquidity.
Minimisation of risk is accomplished by means of what is known as asset securitisation.
Similarly, the borrower has typical set of necessities when exchanging on the financial market.
The borrower will need the assets at a predefined date, for a concurred timeframe, which is
typically long term. Likewise, the borrower requires the venture lowest cost, for example, having
the most reduced interest rate, or giving least amount of equity possible.
Financial Intermediaries have preferences over direct finance, yet definitely there are extra
expenses to the borrowers and banks that are not related with coordinate fund has already said.
These expenses can be anything from commission and charges charged by the Financial
mediator, to loan cost spreads. For intermediated fund to be more helpful than coordinate back,
the advantages related with exchanging by means of financial intermediaries ought to exceed the
expenses of such strategy.
Financial Intermediaries give various capacities. The first is known as size change. A
Financial Intermediaries can obtain to an economic operator with a deficit of assets the sum they
require without the need to discover a loan specialist that will contribute the correct sum required
by the borrower. Without Financial Intermediaries, it would be to a troublesome for a borrower
to raise capital as banks would need to pool their assets together keeping in mind the end goal to
loan the borrower the sum they require. Another capacity of Financial Intermediaries between is

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maturity change. Economic Agents with surplus supports typically incline toward putting their
cash in here and now extends, while borrowers require all the more long-term financing. Money
related go-betweens offer an ideal arrangement, without which borrowers and loan specialists
would be in difference over the terms of the exchange of assets. Money related middle people
likewise give chance change. Monetary specialists with surplus assets are typically exceptionally
chance cognizant with regards to venture, yet borrowers however may require the fund for a
riskier task, that might be more beneficial. Financial Intermediaries will go for broke that
borrowers for the most part would not. Economic agents with an overflow of assets are positive
to the possibility that advantages put resources into are effectively convertible into money.
Financial Intermediaries can give liquidity by having countless specialists willing to contribute,
and guarantee that ventures are secured with money added to new records. Another normal for a
Financial Intermediaries is that they can decrease general expenses related with the exchanging
of a budgetary security. A Financial Intermediaries can profit by economies of scale. They are
subsequently ready to pass on this decrease of expenses as a lower loan cost to the monetary
specialists requiring venture. The last primary capacity of a Financial Intermediaries is that they
can encourage payments not simply by means of cash, but rather by means of checks, credit and
platinum cards, and computerized payments.
A Financial Intermediaries is additionally useful in the way that, occasionally, not every
single financial specialist inside an exchange approach a similar data, which means each financial
operator has not as much as flawless data, and each economic agent's data might be marginally
different. Likewise, a few gatherings approach mystery "inside" data which isn't made accessible
to every financial operator. This outcomes in asymmetry in the quality and measure of data
between monetary operators. This can create adverse selection and moral hazard. Adverse
selection happens before the financial exchange. It comprises of unsafe borrowers being well on
the way to look for, and be chosen for back. It additionally happens in the event that it is hard to
decide the hazard of every individual Financial Intermediaries requiring venture, and in this
manner a widespread financing cost is set. Risky borrowers will effectively hope to raise stores
at that universal interest rate. So also, an ethical risk happens after the finance exchange has
occurred. The financial specialist that was conceded venture utilizes the assets raised for
exercises unlike the ones sketched out to the monetary operator willing to contribute. This in turn
diminishes the likeliness of the credit being paid back. Financial Intermediaries help this

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circumstance by directing how the speculation is utilized, empowering them to expand benefits
for the monetary specialists with an overflow of assets that have contributed. In any case,
observing borrowers can come at a high cost to the financial specialist. It is in this way more
proficient for the economic agents with an excess of assets to hand over the assignment of
directing the borrower to a money related delegate, which can screen the financial specialists
looking for speculation by financing an expansive number of them and spreading reserves over
different investment projects.

Types of financial Intermediaries


In an advanced economy we may recognize four primary sorts of units that take an interest
in the financial procedure, never forgetting that the units as we discover them in life are just
approximations of the perfect sorts set up in a plan of arrangement: (1) households (as customers
and as providers of work administrations); (2) business enterprises; (3) Non-Profit Organizations;
and (4) government. Business ventures and in addition Non-Profit and government associations
might be additionally subdivided by the idea of their transcendent financial action. For this
examination we have to consider just a single of the numerous subdivisions, that into budgetary
and nonfinancial enterprises or organizations. This subdivision classes as financial undertakings
every financial unitbusiness enterprises as well as non-profit organizations and government
organizationsthat are essentially occupied with the holding of and exchanging intangible
resources (claims also, equities).
Nonfinancial enterprises, obviously, likewise hold intangible resources, e.g. cash and
receivables, and have liabilities and value which of need dependably are named intangible. On the
other hand, financial enterprises possess some substantial resources, in any event office hardware
and regularly the structures in which they work and the arrive on which the structures stand. The
main difference amongst financial and nonfinancial ventures are, by the by, genuinely obvious by
and by.
Financial intermediaries are taken to incorporate every single monetary undertaking except
for two units: (1) units whose advantages comprise predominating of the securities of, or of cases
against, entirely possessed or dominant part claimed auxiliaries and associates (holding
organizations); and (2) units claimed by one or a little group of people, or by companies or

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charitable associations, in the event that they make no significant utilization of outside stores; i.e.
enterprises identical with or like what are generally called personal holding organizations.
The main imperative optional financial intermediaries are deals fund, individual back,
considering, what's more, contract organizations, all of which get a large portion of their reserves
from business banks. This enterprise likewise incorporates some organizations financed by other
government-claimed financial intermediaries (e.g. Banks for Cooperatives and Federal
Intermediate Credit Banks) or which make the vast majority of their assets accessible to financial
intermediaries (e.g. Government Home Loan Banks, whose benefits comprise for the most part of
advances to funds and advance affiliations).
On account of some financial intermediaries, for instance certain venture organizations, a
considerable extent of advantages comprises of the securities of other budgetary middle people.
Be that as it may, as long as these constitute the minority of aggregate resources, the holders may
in any case be named essential financial intermediaries. Advance order of the individual financial
units that fall inside the meaning of financial intermediaries changes from nation to nation, changes
after some time, and relies upon the idea of financial intermediaries working at a given time and
place, which is enormously affected by winning lawful courses of action and money related
traditions. In the India the meaning of Financial Intermediaries incorporates for the period with
which this investigation bargains the sorts of organizations recorded beneath, each of which is
comprised of singular units sensibly comparable in the idea of their operations also, in the character
of advantages and liabilities.

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The Regulator
In order to safeguard interests of all the participants in a financial market, a regulator is
established to keep check on the activities and regulate them time to time and also in order to curb
the malpractices such as false issues, delay in delivery, and violation of rules of stock exchange.
In India, this regulator is known as Securities and Exchange Board of India (SEBI). It is an
autonomous institution that is set up by a special act The SEBI Act,1992. The SEBI looks after
following matters and ensures that no party is exploited by another.
1. The stock exchanges (BSE and NSE) conducts its business fairly.
2. Stock brokers and sub brokers carry out their business fairly.
3. Participants dont get involved in unfair practices like insider trading, etc.
4. Corporates dont use the markets to unduly benefit themselves like by spreading
rumors, etc.
5. Small retail investors interests are not exploited by majority shareholders and high
net worth individuals.
6. Overall development of markets.

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Significance of financial markets
Financial markets play an important role in accumulation of capital and the production of
goods and services. Efficient financial markets and institutions tend to lower search and transaction
costs in any economy. It may also help lenders and borrowers to find a close match for their needs.
Any individual, business or even government can turn to any financial institution for funding. If
financial markets are not well developed if can lead to
1. Poorly defined legal systems
2. Costlier fund raising
3. Lower the returns on savings and investments.
4. Higher risks
5. Difficulty in finding right product, maturity and risk profiles for lenders and borrowers.

Financial markets also provide efficient allocation of resources within any economy. It also
provides employment to thousands of individuals.

Significance of financial intermediaries


Financial intermediaries are important part of external funding for corporate. It acts an
intermediary between customer and service provider. Some of the benefits of financial
intermediaries are-
1. Economies of scale
2. Spreading risk

The cost advantages of using financial intermediaries are-


1. Reconciling conflicting preferences of lenders and borrowers.
2. Risk aversion
3. Economies of scope.

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Global Scenario of Financial Markets
The global economy is massive and developing. As indicated by the World Bank, Gross
domestic product (GDP) had developed from $71.83 trillion out of 2012 to roughly $74.91 trillion
in 2013 globally. The United States represented more than 22% of worldwide GDP in 2013;
however, this rate has been declining because of the rise of the economies in India, China, Brazil,
and other creating nations.

(Source- centerforcapitalmarkets.com)

The global financial system is immense and varied; it comprises of numerous sorts of
financial institutions, and also monetary markets in stocks, securities, products, and derivatives.
The worldwide capital market includes 46,000 exchanged stocks that worth over $54 trillion. In
2012 the global bond market exchanged securities worth about $80 trillion, and the mutual fund
industry exchanged about $26.8 trillion. Exchange traded funds exchanged securities worth $2
trillion in 2012, and during the end of 2013 the aggregate notional measure of over-the-counter
subordinates was about $710.2 trillion globally.
The global financial system supports worldwide exchange through financing components
outside the system, such as trade credit. Firms in more developed financial systems tend to utilize
more bank debt with respect to trade credit, and firms in less-developed financial frameworks
utilize more trade credit. In this way, trade credit makes the global financial systems more effective
by substituting for bank credit when such substitution is productive.

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Firms use the global markets to raise capital. The liquidity and depth of the global financial
markets enable organizations to decrease their capital expenses, enhance access to financing,
invest more, and develop. Also, the financial intermediaries other than business banks are
developing more quickly than traditional banking. By year end 2011, it was $67 trillion globally.
In the United States, market based finance is twice as large as depository banking. Shadow banks
furnish firms and family units with profitable economic services.

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Indian Scenario of Financial Markets

A. The banking system


1. Federal Reserve Banks
2. Commercial banks
3. Savings banks
4. Postal savings system
B. Other depositary organizations
1. Savings and loan associations
2. Credit unions
C. Insurance organizations
1. Private life insurance organizations (including fraternal and
savings bank life insurance)
2. Private non-insured pension funds
3. Government insurance and pension funds
4. Property insurance companies
D. Other financial intermediaries
1. Investment companies (including investment-holding and instalment
investment companies)
2. Land banks
3. Mortgage companies
4. Finance companies (including sales finance, personal finance
and factoring companies)
5. Security brokers and dealers
6. Government lending institutions
E. Personal trust departments (including common trust funds)

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(Source-elearnmarkets.com)

Summary and Conclusion

Financial intermediaries play an important role in a financial market. They reconcile the
conflicting demands and preferences of both lenders and borrowers to make redistribution of
surplus to where deficits are possible in an efficient manner. During the process of doing so, some
financial intermediaries offer the major benefits of maturity and risk transformation, as well as
denomination.
Although it is possible for direct finance to achieve these objectives, the cost saving
advantages of employing financial intermediaries are significant. Apart from a financial
intermediarys ability to reconcile conflicting demands and preferences of lenders and borrowers
as well as its risk aversion capacity, economies of scale and economies of scope also contribute to
lowering the overall cost.

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smoothing, Journal of Political Economy 105, 523-546.

Gorton G. and G. Pennacchi, 1990, Financial intermediaries and liquidity creation,


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