M.COM. II SEMESTER
p p COURSE- MC 2.5 p p
Financial Institutions p p
& Markets p
Lesson 1-10 p
Written by: Prof. Vijay Kaushal Revi
p p p p p
sed by: Dr. Suresh Sharma
p p p p
International Centre for Distance Education and Open Learning Himac
p p p p p p p p
hal Pradesh University, Gyan Path
p p p p
Summer Hill, Shimla - 171005
p p p p
1
, CONTENTS
SR.pNO. TOPIC PAGEpNO.
Contents 1
Syllabus 2
Chapter-1. IndianpFinancialpSystem 3
Chapter-2. MoneypandpCapitalpMarkets 14
Chapter-3. MoneypMarketpInstruments 22
Chapter-4. GovernmentpSecuritiespMarket 30
Chapter-5. IndustrialpSecuritiespMarket 37
Chapter-6. NationalpDepositorypSecuritiespinpIndia 49
Chapter-7. CommercialpBanking 57
Chapter-8. MerchantpBanking 70
Chapter-9. ReservepBankingpofpIndia:pCentralpBanking 82
Chapter-10. MutualpFundpinpIndiap–pAnpOverview 90
Chapter-11. FinancialpRegulationspandpReforms 104
‘Assignments’ 124
2
, MC 2.5: FINANCIAL INSTITUTIONS & MARKETS
p p p p p
MaxpMarks:p80
InternalpAssessment:p20
Note:pTherepwillpbepninep(9)pquestionspinpall.pThepfirstpquestionpispcompulsorypandpconsistspofpten
(10)pshort-
questionsphavingptwop(2)pmarkspeach.pThepcandidatepwillpbeprequiredptopattemptponepquestionpfrompea
chpunitpandpeachpquestionpcarriespfifteenp(15)pmarks.
COURSEpCONTENTS
UnitpI
INTRODUCTORY:pNaturepandprolepofpfinancialpsystemp-
pFinancialpSystempandpfinancialpmarkets.pAnpeconomicpanalysispof pfinancialpsystempinpIndia.pIndianpfinanc
ialpsystemp-pApcriticalpanalysis.
FINANCIALpMARKETS:pMoneypandpcapitalpmarkets.pMoneypmarketpInstruments:pCallpmoney,ptreasuryp
bills,pcertificatespofpdeposits,pcommercialpbills,ptradepbills,petc.pCapitalpmarket:pGovernmentpsecuritiespmar
ket,pIndustrialpsecuritypmarket,pRolepofpSEBIp-
pandpoverview;pRecentpdevelopmentspNationalpDepositorypSecuritiespLtd.p(NDSL).pMarket-pMakers.
UnitpII
MONEYpMARKETpINSTITUTIONS:pCentralpbank:pFunctionspandpitsprolepinpmoneypcreation,p Commercial
pbanks;pPresentpstructure.pIntroductionptopInternationalpandpMultinationalpbanking.
NON-
pBANKINGpINSTITUTIONS:pConcept,prolepof pfinancialpinstitutions,psourcespof pfunds,pFunctionspandptype
spofpnon-bankingpfinancialpinstitutions.
UnitpIII
MUTUALpFUNDS:pThepevaluationpofpmutualpfunds,pregulationpofpmutualpfundsp(withpspecialpreferenceptop
SEBIpguidelines),pPerformancepevaluation,pDesignpandpmarketingpofpmutualpfundspscheme;pLatestpmutua
lpfundpschemespinpIndiap-pAnpoverview.pEvaluatingpofpmutualpfunds.
MERCHANTpBANKING:pConcept,pfunction,pgrowth,pgovernmentppolicypregardingpMerchantpbankingpbus
inesspandpFuturepofpmerchantpbankingpinpIndia.
UnitpIV
ChangingpRolepofpFinancialpInstitutionsp:pRolepofpbanking,pfinancialpsectorpreforms,pfinancialpandppro
motionalprolepofpfinancialpinstitutions,puniversalpbanking;pconceptpandpconsequences.
References:
Auerbach,pRobertpD,pMoney,pBankingpandpFinancialpMarkets;pMacmillanpPublishingpCo;pNewpYorkpandpCollie
rpMacMillanpPublisher;pLondon.
Avadbani,pV.A.,pInvestmentpandpSecuritiespMarketpinpIndia;pHimalayapPublishingpHouse;pBombay..pKhan
,pM.Y.,pIndianpFinancialpSystemp-TheorypandpPractice;pVikaspPublishingpHouse;pNewpDelhi.
Mishkin,p Frederics,p S.,p Thep Economicsp ofp Moneyp Bankingp andp Financialp Marketsp ;p Harperp CollinspPubli
sher;pNewpYork.
3
, Lesson-1
Indian Financial System
p p
STRUCTURE
1.0 LearningpObjectives
1.1 Introduction
1.2 ParadigmpShiftpinpFinancialpMarkets
1.3 IndianpFinancialpSystem
1.4 FunctionspofpthepFinancialpSystem
1.5 FinancialpInstitutions
1.6 FinancialpMarkets
1.7 CorporatepSecuritiespMarket
1.8 ProblempAreaspinpthepFinancialpSystem
1.9 FinancialpMarkets:pEmergingpTrends
1.10 RationalpofpFinancialpMarketpReforms
1.11 IndianpFinancialpSystem:pAnpEconomicpAnalysis
1.12 selfpAssessmentpExercise
1.13 Summary
1.14 Glossary
1.15 AnswersptopSelfpCheckpExercise
1.16 TerminalpQuestions
1.17 AnswersptopTerminalpQuestions
1.18 SuggestedpReadings
1.0 LEARNINGpOBJECTIVES
Afterpstudyingpthispchapterpyoupshouldpbepablepto:
1. Understandpthepfinancialpsystemspandpitspfunctions.
2. Explainpthepperfectpcapitalpmarket.
3. Knowpthepdifferentpmarketsptopbepfoundpinpthepfinancialpsystem.
1.1 INTRODUCTION
Theprapidpeconomicpgrowthpandpglobalizationpofpfinancialpmarketspispperhapsponepofpthepmostpsignificantp
developmentspatpthepinternationalplevel.pTheppastptwopdecadesphavepwitnessedpapprocesspofp accelerating
pchangespinpthepglobalpfinancialpmarkets.pDrivenpbypanpinteractingpprocesspofpliberalizationpandpinnovation
,pcontrolspandpregulationsphavepbeenpremoved,pnewpfinancialpproductsphavepemergedp andpoldpboundarie
spbetweenpfinancialpintermediariesphavepblurred.pFinancialpinnovationsphavepbroughtpmanypadvantages.p
Aplargepnumberpofpfinancialpassetspandpliabilitiesparepnotpavailableptopend-users.pThe
4
p p COURSE- MC 2.5 p p
Financial Institutions p p
& Markets p
Lesson 1-10 p
Written by: Prof. Vijay Kaushal Revi
p p p p p
sed by: Dr. Suresh Sharma
p p p p
International Centre for Distance Education and Open Learning Himac
p p p p p p p p
hal Pradesh University, Gyan Path
p p p p
Summer Hill, Shimla - 171005
p p p p
1
, CONTENTS
SR.pNO. TOPIC PAGEpNO.
Contents 1
Syllabus 2
Chapter-1. IndianpFinancialpSystem 3
Chapter-2. MoneypandpCapitalpMarkets 14
Chapter-3. MoneypMarketpInstruments 22
Chapter-4. GovernmentpSecuritiespMarket 30
Chapter-5. IndustrialpSecuritiespMarket 37
Chapter-6. NationalpDepositorypSecuritiespinpIndia 49
Chapter-7. CommercialpBanking 57
Chapter-8. MerchantpBanking 70
Chapter-9. ReservepBankingpofpIndia:pCentralpBanking 82
Chapter-10. MutualpFundpinpIndiap–pAnpOverview 90
Chapter-11. FinancialpRegulationspandpReforms 104
‘Assignments’ 124
2
, MC 2.5: FINANCIAL INSTITUTIONS & MARKETS
p p p p p
MaxpMarks:p80
InternalpAssessment:p20
Note:pTherepwillpbepninep(9)pquestionspinpall.pThepfirstpquestionpispcompulsorypandpconsistspofpten
(10)pshort-
questionsphavingptwop(2)pmarkspeach.pThepcandidatepwillpbeprequiredptopattemptponepquestionpfrompea
chpunitpandpeachpquestionpcarriespfifteenp(15)pmarks.
COURSEpCONTENTS
UnitpI
INTRODUCTORY:pNaturepandprolepofpfinancialpsystemp-
pFinancialpSystempandpfinancialpmarkets.pAnpeconomicpanalysispof pfinancialpsystempinpIndia.pIndianpfinanc
ialpsystemp-pApcriticalpanalysis.
FINANCIALpMARKETS:pMoneypandpcapitalpmarkets.pMoneypmarketpInstruments:pCallpmoney,ptreasuryp
bills,pcertificatespofpdeposits,pcommercialpbills,ptradepbills,petc.pCapitalpmarket:pGovernmentpsecuritiespmar
ket,pIndustrialpsecuritypmarket,pRolepofpSEBIp-
pandpoverview;pRecentpdevelopmentspNationalpDepositorypSecuritiespLtd.p(NDSL).pMarket-pMakers.
UnitpII
MONEYpMARKETpINSTITUTIONS:pCentralpbank:pFunctionspandpitsprolepinpmoneypcreation,p Commercial
pbanks;pPresentpstructure.pIntroductionptopInternationalpandpMultinationalpbanking.
NON-
pBANKINGpINSTITUTIONS:pConcept,prolepof pfinancialpinstitutions,psourcespof pfunds,pFunctionspandptype
spofpnon-bankingpfinancialpinstitutions.
UnitpIII
MUTUALpFUNDS:pThepevaluationpofpmutualpfunds,pregulationpofpmutualpfundsp(withpspecialpreferenceptop
SEBIpguidelines),pPerformancepevaluation,pDesignpandpmarketingpofpmutualpfundspscheme;pLatestpmutua
lpfundpschemespinpIndiap-pAnpoverview.pEvaluatingpofpmutualpfunds.
MERCHANTpBANKING:pConcept,pfunction,pgrowth,pgovernmentppolicypregardingpMerchantpbankingpbus
inesspandpFuturepofpmerchantpbankingpinpIndia.
UnitpIV
ChangingpRolepofpFinancialpInstitutionsp:pRolepofpbanking,pfinancialpsectorpreforms,pfinancialpandppro
motionalprolepofpfinancialpinstitutions,puniversalpbanking;pconceptpandpconsequences.
References:
Auerbach,pRobertpD,pMoney,pBankingpandpFinancialpMarkets;pMacmillanpPublishingpCo;pNewpYorkpandpCollie
rpMacMillanpPublisher;pLondon.
Avadbani,pV.A.,pInvestmentpandpSecuritiespMarketpinpIndia;pHimalayapPublishingpHouse;pBombay..pKhan
,pM.Y.,pIndianpFinancialpSystemp-TheorypandpPractice;pVikaspPublishingpHouse;pNewpDelhi.
Mishkin,p Frederics,p S.,p Thep Economicsp ofp Moneyp Bankingp andp Financialp Marketsp ;p Harperp CollinspPubli
sher;pNewpYork.
3
, Lesson-1
Indian Financial System
p p
STRUCTURE
1.0 LearningpObjectives
1.1 Introduction
1.2 ParadigmpShiftpinpFinancialpMarkets
1.3 IndianpFinancialpSystem
1.4 FunctionspofpthepFinancialpSystem
1.5 FinancialpInstitutions
1.6 FinancialpMarkets
1.7 CorporatepSecuritiespMarket
1.8 ProblempAreaspinpthepFinancialpSystem
1.9 FinancialpMarkets:pEmergingpTrends
1.10 RationalpofpFinancialpMarketpReforms
1.11 IndianpFinancialpSystem:pAnpEconomicpAnalysis
1.12 selfpAssessmentpExercise
1.13 Summary
1.14 Glossary
1.15 AnswersptopSelfpCheckpExercise
1.16 TerminalpQuestions
1.17 AnswersptopTerminalpQuestions
1.18 SuggestedpReadings
1.0 LEARNINGpOBJECTIVES
Afterpstudyingpthispchapterpyoupshouldpbepablepto:
1. Understandpthepfinancialpsystemspandpitspfunctions.
2. Explainpthepperfectpcapitalpmarket.
3. Knowpthepdifferentpmarketsptopbepfoundpinpthepfinancialpsystem.
1.1 INTRODUCTION
Theprapidpeconomicpgrowthpandpglobalizationpofpfinancialpmarketspispperhapsponepofpthepmostpsignificantp
developmentspatpthepinternationalplevel.pTheppastptwopdecadesphavepwitnessedpapprocesspofp accelerating
pchangespinpthepglobalpfinancialpmarkets.pDrivenpbypanpinteractingpprocesspofpliberalizationpandpinnovation
,pcontrolspandpregulationsphavepbeenpremoved,pnewpfinancialpproductsphavepemergedp andpoldpboundarie
spbetweenpfinancialpintermediariesphavepblurred.pFinancialpinnovationsphavepbroughtpmanypadvantages.p
Aplargepnumberpofpfinancialpassetspandpliabilitiesparepnotpavailableptopend-users.pThe
4
