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Constituents of Financial Market

 The Indian financial market comprises, in the
  main, the:
  •   Credit market
  •   Money market
  •   Capital market
  •   Foreign exchange market
  •   Debt market
  •   Derivatives market

 Credit Market

 The credit market is the predominant source of finance.
 The major institutional purveyor of credit in India are banks and
  non-banking financial institutions, i.e., development financial
  institutions (DFIs) and other financial institutions (FIs) and non-
  banking financial companies (NBFCs) including housing finance
  companies (HFCs).
 The non-institutional or unorganised sources of credit include
  money-lenders, indigenous bankers and sellers for trade credit.
 An important aspect of the credit market is its term structure,
  viz., (i) short-term credit, (ii) medium-term credit, and (iii) long-
  term credit. While banks and NBFCs predominantly cater to
  short-term needs, FIs provide mostly medium and long-term

Foreign Exchange Market

 The foreign exchange market in India comprises
  customers, authorised dealers (ADs) and the
  Reserve Bank.
 There has been a considerable improvement in
  the forex market turnover in the recent years,
  particularly during the post-reform period.

Debt Market
 The domestic debt market comprises two main
  segments, viz., the Government securities and
  other (mainly corporate) securities comprising
  private corporate debt, PSU bonds and DFIs
  bonds. The government securities market is pre-
  dominant, while the other segment is not very
  deep and liquid.

 Government Securities Market:
  The main investors in the Government securities market in India
  are commercial banks, co-operative banks, insurance companies,
  provident funds, financial institutions (including term-lending
  institutions), mutual funds especially the gilt funds, primary
  dealers, satellite dealers, non-bank finance companies and
  corporate entities.
 Secondary Market Window:
  The central banks often play the role of market makers providing
  two-way quotes through their sales window to infuse liquidity in
  the secondary market for the Government securities.

 Discount House Arrangements
 Primary Dealer System:
  The primary dealer system was evolved and made functional in
  1996 with the objective of strengthening the securities market
  infrastructure and bringing about improvement in the secondary
  market trading, liquidity and turnover in Government securities
 Satellite Dealers:
  The network of satellite dealers provides retail outlets thereby
  encouraging voluntary holding of Government securities among
  a wide investor base. The SDs are also given limited liquidity
  support from the Reserve Bank.

 Gilt Funds:
  The Reserve Bank also encouraged setting up of mutual
  funds dealing exclusively in gilts, called gilt funds with a
  view to encouraging schemes of mutual funds dedicated
  to Government securities and creating a wider investor
  base for them.
 Other Debt Markets:
  The corporate debt market still constitutes a small
  segment of the debt market despite policy initiatives
  taken during the ‘nineties.
  A large proportion of corporate debentures in India is of
  hybrid variety combining features of both debt and
Derivatives Market

 Financial derivatives in the Indian financial
  markets are of recent origin barring trade related
  forward contracts in the forex market . Recently,
  over-the-counter (OTC) as well as exchange
  traded derivatives have been introduced,
  marking an important development in the
  structure of financial markets in India.


 In Europe the synergy between banking and insurance
  has given rise to the concept of ‘bancassurance’ – a
  package of financial services that can fulfil both banking
  and insurance needs.
 In India, the Reserve Bank, in recognition of the
  symbiotic relationship between banking and the
  insurance industries, has identified three routes of
  banks’ participation in the insurance business, viz., (i)
  providing fee-based insurance services without risk
  participation, (ii) investing in an insurance company for
  providing infrastructure and services support and (iii)
  setting up of a separate joint-venture insurance
  company with risk participation.

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