Unit I

Basic Theoretical Framework

Q1) What do you mean by financial system?    5 

A1) The financial system acts as a liaison between rescuers and investors. It facilitates the flow of funds from the residual area to the residual area. She is worried about money, debt and finances. These three parts are closely related and interdependent.

A financial plan can be defined as a set of institutions, methods, and markets to promote savings and efficiency. It has people (saver), mediators, markets, and savings users (investors).

In Van Horn's world, "the financial system is making good use of money in the economy for the end user, either through investment or the use of real assets."

According to Prasanna Chandra, "The financial system is made up of a variety of institutions, markets and related systems and provides key ways to turn savings into investment."

Therefore, a financial system is a complex and closely related set of financial institutions, financial markets, financial instruments, and services that facilitate money transfers. Financial institutions collect funds from providers and provide these funds to those who request them. Similarly, financial markets are required to transfer money from depositors to mediators and mediators to investors. In short, a financial system is a way of saving money and converting it into money.

Characteristics, importance, and function of the Indian financial system

1. Issuing and collecting deposits.
2. Loan supply from a pool of collected money.
3. Implementation of financial transactions.
4. Drive the growth of equity and other financial markets.
5. Set up a legal commercial substructure.
6. Providing financial and consulting services.
7. Allows adaptation of portfolios of existing assets.
8. Opportunity and risk allocation.
9. It builds a connection between depositors and investors.
10. By expanding its scope, we will expand the depth and breadth of our finances.
11. It is responsible for the creation of capital.
12. Add time value to assets and money.
13. Set up the payment structure and the entire system.
14. Allocate and dissipate economic resources.
15. To maintain economic stability of the country and markets.
16. Create a market where you can judge your investment performance.
17. Components of Indian financial system

Q2) Examine the various components of the Indian financial system. 8

A2) There are five main components:

1. Financial institution

1. Their role is to act as an intermediary between lenders and borrowers.
2. Lenders' savings are collected through various commercial markets.
3. These can turn risky financing into a safe investment.
4. Short-term debt can be turned into longer-term investments.
5. These allow you to compare comparable large deposits and loans with small deposits and loans because of their uniform face value.
6. These provide a balance between the recipient of the loan and the depositor of the amount.

There are two main types of financial institutions.

a. Banking or deposit handling institution

1. Their role is to make money from the masses.
2. Interest is paid on these deposits made by people.
3. The loaned money is offered as a loan to those who need it.
4. Interest will be charged on these loans given to those who need it.
5. Examples are banks and other co-operatives.

b. Non-banking or non-depositing institution

1. Their role is to sell commercial and financial goods and products to those who visit them.
2. These are based on the provision of insurance, investment trusts, brokerage transactions and more.
3. These examples primarily include businesses.

These have three additional categories:

1. Regulation:Management and institutions that regulate and overlook commercial and financial markets. Example – RBI, IRDA, SEBI, etc.
2. Intermediate: An institution that provides financial counselling and supports by providing loans and the like. Example – PNB, SBI, HDFC, BOB, Axis Bank.
3. Non-Intermediate: These institutions support the finances of corporate visitors. Example – NABARD, SIDBI, etc.

2. Financial assets

These objectives are to provide convenient trading of securities in the commercial and financial markets, based on the requirements of credit seekers.

These are goods or products sold in the financial markets. Financial assets include:

1. Call Money: Without guarantee, this is a one-day loan that will be repaid the next day.
2. Notice: Without guarantee, this is the rent for a loan of 1 to 14 days.
3. Term Money: When a certain amount of money deposited exceeds the maturity of 14 days.
4. Treasury Short Term Securities: These belong to the government in the form of bonds or debt securities as they have a maturity of less than one year. These are purchased in the form of government T-Bills, which are received as government loans.
5. Certificate of Deposit: This works in the form of electronic funds that remain in a particular bank for a period of time.
6. Commercial Paper: A product used by a company that is unsecured despite short-term debt.

3. Financial services

1. Their primary purpose is to provide counselling to visitors regarding the purchase or sale of real estate, transactions, transactions, loans, and investment permits.
2. They also ensure the effectiveness of the investment and the placement of funding sources.
3. These are usually picked up by asset and liability management companies.

Financial services are also included in them:

Banking Services: The functions that banks perform, such as providing loans, accepting debits, distributing credit or debit cards, opening accounts, and granting checks, are some of these services.

Insurance Services: These include services such as providing insurance, selling insurance, and brokerage transactions.

Investment Services: These services include oversight and management of investments, assets and deposits,

Forex Services: These include foreign currency exchange, foreign exchange, and foreign money transfers.

4. Financial market

These are the markets where bonds, stocks, money, investments and assets are traded and exchanged between buyers.

There are four main types of financial markets:

a. Capital market

1. These deal with transactions and transactions that take place in the market.
2. These are done for a year.
3. These are the three main types:
4. Corporate securities market
5. Government securities market
6. Long-term loan market

b. Financial market

1. These are for short-term investments.
2. They are built by governments, banks, and other institutions.
3. This market is based on low-risk wholesale debt with transparent products and formats.

It has two main types:

a)     organized money market

b)    Unorganized money market

c. Forex market

1. A highly developed market that handles several currencies.
2. It is responsible for the foreign remittance of funds.
3. This is based on the foreign currency rate.

d. Credit Market

1. This includes both short-term and long-term loans.
2. It is often given to both individuals and organizations.
3. These are granted by some banks, financial institutions, non-banks and more.

5. Money

This is an important exchange that can be used to purchase goods and services. It also can act as a store useful. It is evenly accepted everywhere.

It facilitates trading, especially instant daily purchases. It serves as a verifiable record in the socio-economic context.

The role and importance of financial planning in economic development

1. Connecting savers with investors. This helps to collect and allocate money efficiently and effectively. It plays an important role in economic development through the savings process. This process of saving money is called capital construction.
2. It helps to monitor the performance of companies.
3. Provides a way to manage uncertainty and risk control.
4. Provides a way to transfer resources across local boundaries.
5. Provides portfolio preparation skills (provided by financial markets and financial intermediaries).
6. It helps to reduce transaction costs and increase profits. This will encourage people to save more.
7. Guides the fundraising process.
8. It helps to simplify the process of financial depth and expansion. Deepening funding means increasing the value of financial assets to GDP, and expanding finance means increasing the number and types of participants and methods.
9. In order to achieve economic development, a financial system that encourages people to save by providing attractive interest rates is important. These funds are for the borrowing of various business concerns related to production and distribution.
10. It helps to monitor business performance
11. Connecting savers with investors. This process is known as capitalization
12. It helps to reduce transaction costs, increase profits and encourage people to save more
13. It helps government to make monetary policy decisions

In short, the financial system helps to accelerate economic development. We will contribute to growth through technological advancement.

Q3)Write the function of financial system.      5

A3) The function of the financial system

The country's financial system serves certain key functions for the country's economic growth. The key functions of the financial system are outlined below.

1. Savings Work: An important function of a financial plan is to promote savings and invest in productive activities. With a financial plan, savings are converted into cash.

2. Liquidity Activity: The most important function of a financial system is to provide financial and financial resources in the production of goods and services. A financial asset is an asset that can be easily converted into cash or cash without losing its value. All financial system activities are related to cash payments, which can be the supply of goods or transactions.

3. Payment function: The financial system provides the most convenient payment method for goods and services. Checks and credit card schemes are the easiest ways to pay off in the economy. Transaction costs over time are greatly reduced.

4. Risk Work: Financial markets protect against life, health and income risks. These guarantees are available through the sale of life insurance, health insurance and property insurance.

5. Information Service: The financial system makes available price-related information available. This is an important resource for those who need to make financial and financial decisions. Financial markets disseminate information that enables participants to develop knowledgeable ideas about investing, withdrawing, renewing or retaining certain assets.

6. Transfer function: The financial system provides a means of transferring resources across local boundaries.

7. Transformation Work: A financial plan responsible for developing and delivering financial resources / equipment and reconstruction practices for existing assets, services, etc. To meet the new needs of lenders and investors. (Financial engineering and new engineering).

8. Other features: Helps you select funding projects and regularly evaluate the effectiveness of those projects. It also facilitates the fundraising process by combining savings and the need for investment.

Q4) What is financial technology? What are the technology that contributes to Fintech?                                                                                                                                            5

A4) The time period fintech refers back to the synergies of finance and generation and is used to beautify enterprise operations and the availability of economic offerings. Fintech can take the shape of software, offerings, or groups that offer technologically superior approaches to make economic procedures extra green via way of means of interrupting conventional methods.

FinTech's maximum outstanding programs consist of cellular payments, automatic funding apps (Robo-advisors), crypto currencies, on-line lending groups and crowd funding structures.

Technology that contributes to Fintech

1. Artificial intelligence (AI) and device learning (ML)

Artificial intelligence (AI) and device learning (ML) are a number of FinTech's maximum used technologies, providing the capacity to play an excellent extra function withinside the economic enterprise as improvement progresses. AI and ML fintech programs consist of credit score scoring, fraud detection, regulatory compliance, and wealth control.

2. Big facts and facts analysis

Data from clients and markets is of awesome cost to fintech agencies. Through huge datasets, it may be used to extract customer preferences, intake conduct and funding behaviours and broaden predictive analytics.

Predictive analytics makes use of ancient facts and mathematical algorithms to be expecting how customers are probable to behave. The facts accumulated may also assist you broaden advertising techniques and fraud detection algorithms.

3. Robotic Process Automation (RPA)

Robotic Process Automation (RPA) refers back to the method of assigning guide repetitive responsibilities to robotics instead of people to streamline the workflow of economic institutions. The maximum famous programs of RPA in finance are:

Statistics and facts collection

Regulatory compliance control

Communication and advertising through e-mail and chatbots

Transaction control

4. Block chain

Block chain generation has been extensively followed with inside the economic enterprise, mostly due to the fact it may securely save transaction data and different touchy facts. Each transaction is encrypted and cyber attacks are noticeably not going to be triumphant if block chain generation is used. Block chain generation is likewise the spine of many crypto currencies.

Q5) What is financial stability?      5

A5) Financial Stability

Financial balance is a kingdom wherein monetary structures consisting of important monetary markets and monetary establishments are proof against financial shocks and might easily carry out primary capabilities consisting of mediation of monetary funds, danger management, and association of payments.

Financial balance is one of the maximum broadly mentioned troubles in modern-day financial literature. The relevance of the evaluation of monetary balance became first identified all through the global monetary disaster of the past due 90s and became reinforced with the aid of using the monetary and financial disaster of 2007. These tendencies have created the want to constantly offer opinion to professional public opinion. The modern dependable scenario concerning the kingdom of the monetary zone in a selected United States of America. Due to the interrelationships of dependencies (which may be interpreted at each the vertical and horizontal levels), the evaluation must cowl the whole monetary middleman device. In different words, similarly to the banking device, non-banking establishments that in some way take part in monetary intermediation additionally want to be analyzed. These encompass exclusive varieties of establishments consisting of brokerage firms, funding funds, coverage businesses and different (various) funds. When studying the steadiness of an institutional device, have a take an observe how properly the whole device can resist outside and inner impacts. Of course, shocks do now no longer constantly pose a disaster, however a risky monetary surroundings can itself hinder the healthful improvement of the economy.

Various theories outline the reasons of monetary instability. Their relevance may also range with the aid of using term and United States of America in the scope of the evaluation. Among the trouble elements affecting the whole monetary device, the literature usually defines the subsequent elements: fast liberalization of the monetary zone, insufficient financial policies, unreliable trade price mechanisms, inefficiencies: Good useful resource allocation, susceptible supervision, negative accounting and auditing regulations, negative marketplace discipline.

Analyzing monetary balance is a totally complicated task, because the reasons of the monetary disaster cited above arise now no longer best collectively, however for my part or in random combinations. Focusing on person branches distorts the massive picture, and the trouble desires to be taken into consideration in a complicated manner withinside the system of studying monetary balance.

Q6) What is financial stability?  What are the factors that affect fiscal stability?                                                                                                                                                          8

A6) Financial balance is a kingdom wherein monetary structures consisting of important monetary markets and monetary establishments are proof against financial shocks and might easily carry out primary capabilities consisting of mediation of monetary funds, danger management, and association of payments.

Financial balance is one of the maximum broadly mentioned troubles in modern-day financial literature. The relevance of the evaluation of monetary balance became first identified all through the global monetary disaster of the past due 90s and became reinforced with the aid of using the monetary and financial disaster of 2007. These tendencies have created the want to constantly offer opinion to professional public opinion. The modern dependable scenario concerning the kingdom of the monetary zone in a selected United States of America. Due to the interrelationships of dependencies (which may be interpreted at each the vertical and horizontal levels), the evaluation must cowl the whole monetary middleman device. In different words, similarly to the banking device, non-banking establishments that in some way take part in monetary intermediation additionally want to be analyzed. These encompass exclusive varieties of establishments consisting of brokerage firms, funding funds, coverage businesses and different (various) funds. When studying the steadiness of an institutional device, have a take an observe how properly the whole device can resist outside and inner impacts. Of course, shocks do now no longer constantly pose a disaster, however a risky monetary surroundings can itself hinder the healthful improvement of the economy.

Various theories outline the reasons of monetary instability. Their relevance may also range with the aid of using term and United States of America in the scope of the evaluation. Among the trouble elements affecting the whole monetary device, the literature usually defines the subsequent elements: fast liberalization of the monetary zone, insufficient financial policies, unreliable trade price mechanisms, inefficiencies: Good useful resource allocation, susceptible supervision, negative accounting and auditing regulations, negative marketplace discipline.

Analyzing monetary balance is a totally complicated task, because the reasons of the monetary disaster cited above arise now no longer best collectively, however for my part or in random combinations. Focusing on person branches distorts the massive picture, and the trouble desires to be taken into consideration in a complicated manner withinside the system of studying monetary balance.

The five factors that cause financial instability.

1. Invisible, out of my heart

It's easy to forget things that are too hard to see, but these little things pile up and eventually come as a rude shock. The inability to track small expenses has a negative impact on our finances. These small costs consist of goods or services that are undesirable, passive, and idle for quite some time. For example, mobile number value-added services, such as the Caller Tune service and the long-forgotten Gym membership, are billed monthly and punctured in your pocket. To counter this, thoroughly analyze all invoices and eliminate unwanted services and products. Correcting leaks is very important as small leaks can sink the ship.

b.    Best budget

Financial crisis and how to avoid it

Financial instability may be due to the inability to maintain a budget. You need to know your cash flow in terms of money allocated as savings, investments, daily needs, etc. This allows you to track your spending, avoid loopholes, prevent financial decline and focus on your investment easily. .. Set a one-month limit and write down all the pennies you use. Alternatively, you can take notes on your mobile phone or keep an Excel sheet. So, if you save enough, investing wisely will allow you to focus more on doubling your money. Financial stability depends not on Heracles' work, but on the efficient allocation of funds.

c.     Plastic, far away

Reckless spending is usually unplanned and often uses plastic rather than paper to cover the cost. This is obvious. Your credit card may look like our loyal companion when you run out of cash, but it's an indirect trick that allows you to lose more money. Credit / debit cards are very useful during travel and urgent requirements, but they can also pose a risk to financial well-being as well. You won't notice this until your credit card bill arrives at your doorstep. This is because every time you buy a card, there is a certain amount of interest. Also, if EMI payments are delayed, interest rates will rise. And best of all, you haven't even read the card statement. It's literally in the red.

d.    Don't worry when you're in debt

It's good to settle your debt in time. It should not be seen as encouraging more loans. Unstable financial conditions are usually the result of excessive debt clusters that fall unknowingly. It has a lot to do with fuss spending. Debt suffering is also due to unorganized debt planning. It is necessary to break the vicious circle by establishing a system to settle debts within a set period and repayment of the amount that does not fit in the wallet.

e.     Binji spending that clash

There can never be a firm justification for buying something new and expensive every time. It's okay to give in to the whims of the moment, but impulse purchases affect economic stability. It not only ruins your budget, but also keeps you away from achieving your financial goals. If you're the kind of person who ends up buying something or everything that gasped you during window shopping, that's when you hold it.

Q7) What is Universal banking? How does it work?   5

A7) Universal banking may be described as a banking gadget that gives a much broader variety of banking and economic offerings (which includes insurance, improvement banks, funding banks, business banks, and different economic offerings) in comparison to standard banking establishments. Simply put, it could be understood as a mixture of all 3 offerings: retail banking, funding banking, and wholesale banking. The gadget affords offerings which includes wealth control, deposits, charge processing, funding advisory, underwriting, securities trading, economic analysis, service provider banking, factoring, mutual funds, credit score cards, vehicle loans, insurance, domestic finance, retail loans and more.

How does it work?

The Universal Banking gadget does now no longer pressure taking part banks to offer all the above offerings. Rather, it lets in them to pick out and provide a huge variety of offerings. Banks taking part on this gadget can continually pick offerings in keeping with their comfort, self-self belief and expertise.

This will permit accepted banks to provide an extraordinary variety of offerings all below one roof. Participating banks have to follow all recommendations for powerful control of economic belongings and transactions. The offerings supplied through taking part banks range from financial institution to financial institution, and on this context, the guidelines that follow to every financial institution additionally differ.

Q8) What are financial intermediaries? Give example.   5

A8) A financial institution (FI) is a financial institution that mediates between the ultimate lender and the ultimate borrower. Funds flow directly or indirectly through financial institutions from the ultimate lender to the ultimate borrower.

FI is a commercial bank, co-operative credit association and bank, investment trust bank, investment trust, savings and loan association, construction association and housing loan association, insurance company, merchant bank, unit trust, and other financial institutions.

FI is classified as follows.

(A) Commercial banks;

(B) Non-bank financial institution (NBFI).

The essential function of FI is to meet the tastes of two types of personal or corporate portfolios at the same time. On the one hand, there are borrowers who are non-financial (deficit) spending units. According to Gurley and Shaw, their main function is to generate and buy current output, not to issue and buy one type of security and another type of security.

They want to expand their holdings of real assets such as inventories, real estate, plants and equipment. They fund them by issuing primary securities, which Girly and Shaw define as "all liabilities and outstanding shares of non-financial spending units." They are bonds, corporate stocks, personal and corporate debt, mortgages, invoices and more. These are their debts. On the other side are lenders (surplus income units or savers) whose assets are in the form of bank deposits, insurance policies, pensions, etc.

The FI transfers funds from the final lender to the final borrower. They earn savings in surplus income units and offer themselves a claim in return. They also purchase primary securities from non-financial spending units by making claims to themselves through indirect or secondary securities.

Therefore, FI issues secondary securities. They are currencies issued by central banks, commercial bank demand and time deposits, and non-monetary intermediary savings deposits, insurance and pension funds. Therefore, FI is a securities dealer.

They buy primary securities and sell secondary securities. Therefore, FI acts as a dealer by purchasing funds from the final lender in exchange for its secondary securities and selling the funds to the final borrower in exchange for Itatter's primary securities. The purchase of primary securities by surplus income units is called direct financing and is called indirect financing by financial intermediaries. Both primary and secondary securities are called financial assets.

Financial intermediaries

Definition: A monetary intermediaries is a business enterprise that acts as a hyperlink among traders and debtors to obtain the monetary targets of each parties. These may be taken into consideration as entities that receive deposits from depositors or traders (creditors). In addition, those corporations lend this quantity to people and businesses (debtors) at exceptionally excessive hobby fees to steady margins.

Two of the critical roles that monetary intermediaries play within side the economic system are the era of budget and the control of charge systems.

Example

Example of financial intermediary

1. Insurance company

If you have a high-risk investment. You may want to insure against the default risk. It's easier to go to an insurance company that can provide insurance and help spread the risk of default than trying to find a specific individual to insure you.

2. Financial adviser

Financial advisors do not lend or borrow directly. They can provide expert advice on your behalf. This eliminates the need to spend time understanding all the complexities of financial markets and finding the best investment.

3. Credit union

A credit union is an informal type of bank that provides facilities for lending and depositing within a particular community.

4. Investment Trust / Investment Trust

These are investment trust schemes. These pool the small savings of individual investors and enable larger investment funds. Therefore, small investors can benefit from joining a larger investment trust. This allows small investors to benefit from the smaller commission rates available for large purchases.

Q9) Explain the types of financial intermediaries.   5

A9) Types of financial intermediaries

There are numerous monetary intermediaries shaped to serve the diverse functions and functions of clients or individuals or creditors and debtors. These entities are defined in element below. Types of monetary intermediaries

1. Banks: Central banks and industrial banks are the maximum famous monetary intermediaries that simplify the lending and borrowing technique at the same time as supplying a huge style of different offerings to their clients.
2. Credit unions: These are co-operative monetary devices that facilitate the lending and borrowing of budget to offer monetary assist to their individuals.
3. Non-financial institution monetary business enterprise: NBFC is a monetary business enterprise engaged in sports which include lending to clients at very excessive hobby fees.
4. Stock Exchange: The inventory trade enables the buying and selling of securities and shares and needs middleman from every birthday birthday celebration in its income in all buying and selling sports.
5. Investment Trust Company: An funding consider business enterprise golf equipment the quantity of cash amassed from diverse traders. These traders have the equal funding targets and risk-taking capabilities. The budget are then invested collectively in securities, bonds and different funding alternatives to steady capital profits withinside the lengthy run.
6. Insurance Companies: These organizations provide coverage guidelines to people and entities to shield them from accidents, deaths, risks, uncertainties, and defaults. For this motive, they receive deposits withinside the shape of premiums, which might be pooled into worthwhile investments to make a profit. The insured can declare cash withinside the occasion of an coincidence in line with the contract.
7. Financial Advisors or Brokers: Investment agents additionally boost budget from a whole lot of traders to put money into securities, bonds, shares and extra. Financial advisors offer traders with steerage and professional opinion.
8. Investment Bankers: These banks specialise in offerings which include preliminary public offerings (IPOs), different preliminary public offerings, M & A proofs, institutional brokerage offerings, and debt underwriting. A business enterprise that troubles securities.
9. Escrow Company: It is a 3rd birthday celebration that acts as an middleman and is accountable for making sure that everyone situations are met on the time of the mortgage furnished through one birthday celebration to the alternative for a actual property mortgage.
10. Pension Fund: Government businesses release pension budget. A constant quantity could be deducted out of your month-to-month salary. This amassed general is invested in diverse schemes to make a profit. Investor budget could be again with hobby after retirement.
11. Building and Loans: These monetary intermediaries are just like credit score unions and personal and sell mortgages and call for deposits to their individuals.
12. Collective Investment Scheme: In this scheme, diverse traders with a not unusual place funding motive acquire to pool budget and together make investments this quantity in worthwhile funding alternatives. Later they'll proportion the income amongst themselves in line with the agreement.

Q10) Write the advantages and disadvantages of financial intermediaries.5

A10) Benefits of economic intermediaries

Financial intermediaries are as crucial to the economic system as blood is within side the body. Some of its crucial advantages are defined below.

1. Low chance: Broker involvement reduces the chance of fraud, defaults or even capital loss for lenders.
2. Convenience: Exchanges are appropriate for buyers in addition to debtors. Being both, the events do now no longer must make investments money and time to locate every different. Instead, they ought to method the middleman for the purpose.
3. Economies of scale: Significantly lessen the charges related to lending and borrowing funds, consisting of credit score reputation analysis, working charges, and office work charges. Financial intermediaries perform such sports on a massive scale.
4. Financial Specialization: These groups or agencies concentrate on fund control and funding sports, offering higher returns to buyers and clean lending to debtors.
5. Increased liquidity: Banks and different economic intermediaries permit buyers and depositors to withdraw cash at any time in keeping with their requirements.
6. Safe Investment: From an investor's perspective, economic intermediaries are taken into consideration greater dependable and credible than lending cash without delay to people to generate hobby.

Disadvantages of economic intermediaries

Everything has phases, one is high-quality and the alternative is negative. They aren't charities due to the fact they already recognise that economic intermediaries are working for profit. Below are a number of its drawbacks.

1. Low Return on Investment: Since the final purpose of a economic middleman is to make a profit, it typically gives a low hobby price on investments through depositors.
2. Opposite Goals: Investor and economic middleman desires might not supplement every different and consequently one might not be achieved.
3. Fees and Fees: These agents impose expenses, expenses and commissions at the economic help supplied to their clients.
4. False Opportunities: Financial intermediaries may also provide you with funding possibilities that assure excessive capacity returns with hidden risks. Even a number of those do now no longer supply promised returns and may show to be a failure for buyers.
5. High Interest Rates on Loans: These economic intermediaries price excessive hobby costs on loans provided to debtors for profit.

Q11) What is financial innovation? Give example.    8

A11) Financial innovation is the technique of making new merchandise, services, or techniques associated with the monetary sector. They arise over the years as monetary merchandise and charge structures evolve.

Understand monetary innovation

Financial innovation is carried out through lending and borrowing funds. The time period may be located within side the mild of numerous regions of the monetary gadget, along with fairness capital, cash transfers and cell banking.

Investment crowd funding has all started to make the technique of elevating capital greater democratic. It eliminated the perception that just a few privileged human beings ought to spend money on early and developing companies. Currently, man or woman buyers can spend money on initiatives in keeping with their interests. Such man or woman buyers get hold of stocks within side the corporation wherein they've invested.

Financial innovation is the act of making now no longer handiest new monetary merchandise, however additionally new monetary technologies, monetary institutions, and markets. Recent monetary improvements encompass hedge funds, personal fairness, climate derivatives, retail mutual funds, exchange-traded funds, multi-own circle of relatives workplaces and Islamic bonds (sukuk). The shadow banking gadget has spawned a number monetary improvements, such as mortgage-subsidized securities merchandise and collateralized debt obligations.

Examples

When discussing the future of financial technology (fintech), the conversation has focused over the years on the example of financial innovation from EFT to PayPal and more recently to Bitcoin. The future of FinTech often moves at terrifying speeds, and it is important to recognize which financial innovations have changed our lives and which have dramatically failed. There are many lessons to be learned from both.

1) PayPal

PayPal is one of the largest examples of financial innovation in the world and is the 73rd visited website in the world. In 1998, PayPal, then known as Confinity Inc, was founded by Ken Howery, Luke Nosek, Max Levchin, Peter Thiel and Elon Musk. Almost immediately, the company was very successful, growing by about 10% every day. By mid-2000, the organization had hit 5 million users, and just two years later, PayPal was acquired by eBay for $ 1.5 billion. Peter Thiel commented on the acquisition: "EBay and PayPal have built a vibrant user network on the Internet. The advantage of this transaction is that it provides the community with new tools and adds flexibility to do more business."

2) Funding circle

A funding circle is a platform that connects organizations that have the money to raise money with trusted companies that are looking for money. Its founders, Alex Tonelli and Sam Hodges, launched the platform after experiencing how difficult it is to raise money for small businesses. After opening several fitness centers together, the two couldn't get a loan and couldn't grow their business further. This experience gave rise to the idea of ​​creating a funding circle.

3) M-Pesa

M-Pesa started as a convenient way to send money to your home and has become the largest mobile network operator in Kenya and Tanzania. Today, the platform allows Kenyans, who live primarily in rural areas and do not have many bank accounts, to withdraw money and pay for goods using deposits, money transfers and mobile phones. M-Pesa is one example of how financial innovation has led to financial inclusion by creating services for banks without bank accounts and banks without bank accounts. Access using PIN-protected text messages.

4) WeChat

WeChat has become one of the world's most popular and independent mobile apps through monthly active users, surpassing 1 billion earlier this year . WeChat, first introduced by Tencent in 2011, will eventually be Becomes its own ecosystem .

Users now have access to a number of features of the app, including:

1. Messaging, voice messaging, voice and video calling
2. Digital version of government-issued ID card
3. Share updates, locations and photos with Moment Feed
4. Search for nearby people with the "Shake and Look Around" feature and send a message with the "Drift Bottle" feature
5. Read the article
6. Send a virtual red envelope to a friend for real money
7. Send money and pay at the store
8. Credit card payments, utility bill payments, mobile phone replenishment, or asset management product purchases.

Q12) Write a short note on RBI.       5

A12) RBI is the Central Bank of India. It was founded in 1935 under the special law of Parliament. The RBI is a major authority on national monetary policy. The main function of the RBI is to maintain economic stability and the required level of liquidity.

RBI also controls and regulates the monetary system of our economy. This is the only banknote issuer in India. RBI is the central bank that manages all other commercial banks, financial institutions, financial companies and more. The RBI oversees the country's entire financial sector.

The Reserve Bank of India is Japan's principal financial institution. The Reserve Bank of India is the top of the united states's monetary machine, entrusted with administrative, supervisory, facilitating, growing and making plans tasks. The Reserve Bank of India became mounted on April 1, 1935 according with the Reserve Bank of India Act of 1935. However, the Reserve Bank of India became nationalized through the authorities after independence. It have become a public area financial institution from January 1, 1949. Therefore, the Reserve Bank of India became mounted according with the 1935 Act, and delegation of authority became performed below the Banking Regulation Act of 1949.

The Reserve Bank of India is the queen bee of the Indian monetary machine, which affects the control of industrial banks in more than one ways. The Reserve Bank of India affects the control of industrial banks thru numerous rules, guidelines and regulations. Its function in financial institution control may be very unique. In fact, the Reserve Bank of India has 4 primary capabilities of control: making plans, organizing, overseeing and managing, in laying a robust basis for the functioning of industrial banks. The Reserve Bank of India essentially has 4 nearby committees within side the north, south, east and west. Delhi, Chennai, Calcutta and Mumbai.

Q13) Write a short note on RBI and its purpose.     8

A13) RBI is the governing body of India's monetary policy. They control the flow of money to the market through various means of monetary policy. This helps the RBI manage inflation and liquidity in the economy. Let's take a look at the monetary policy tools used by the RBI.

Reserve Bank of India

RBI is the Central Bank of India. It was founded in 1935 under the special law of Parliament. The RBI is a major authority on national monetary policy. The main function of the RBI is to maintain economic stability and the required level of liquidity.

RBI also controls and regulates the monetary system of our economy. This is the only banknote issuer in India. RBI is the central bank that manages all other commercial banks, financial institutions, financial companies and more. The RBI oversees the country's entire financial sector.

The Reserve Bank of India is Japan's principal financial institution. The Reserve Bank of India is the top of the united states's monetary machine, entrusted with administrative, supervisory, facilitating, growing and making plans tasks. The Reserve Bank of India became mounted on April 1, 1935 according with the Reserve Bank of India Act of 1935. However, the Reserve Bank of India became nationalized through the authorities after independence. It have become a public area financial institution from January 1, 1949. Therefore, the Reserve Bank of India became mounted according with the 1935 Act, and delegation of authority became performed below the Banking Regulation Act of 1949.

The Reserve Bank of India is the queen bee of the Indian monetary machine, which affects the control of industrial banks in more than one ways. The Reserve Bank of India affects the control of industrial banks thru numerous rules, guidelines and regulations. Its function in financial institution control may be very unique. In fact, the Reserve Bank of India has 4 primary capabilities of control: making plans, organizing, overseeing and managing, in laying a robust basis for the functioning of industrial banks. The Reserve Bank of India essentially has 4 nearby committees withinside the north, south, east and west. Delhi, Chennai, Calcutta and Mumbai.

Purpose of the Reserve Bank of India

The preamble to the Reserve Bank of India Act of 1934 explains the reason of the Reserve Bank as follows: The countrywide credit score machine for its benefits. "

Prior to the status quo of the Reserve Bank, India's monetary machine became absolutely insufficient because of the twin manipulate of the foreign money through the principal authorities and the inherent weak spot of credit score through the Imperial Bank of India. Therefore, the Hilton Young Commission has said that the dichotomy and department of duties for foreign money and credit score control, and the unique rules on this regard, have to be terminated through the status quo of a principal financial institution referred to as the Reserve Bank of India. Recommended. This will adjust economic coverage and expand banking centers nationwide. Therefore, the World Bank became mounted with this number one reason in mind.

Another reason of the Reserve Bank became to be loose from political affect and to perform correctly to keep monetary balance and credibility. The primary reason of the Reserve Bank of India is to behave in simple terms as a principal financial institution withinside the Indian monetary markets, this is, to behave as a bond issuer, a banker's financial institution, a banker to the authorities, within. To sell monetary growth. A well-known authorities monetary coverage framework this is constant with the want to keep rate balance.

A crucial reason of the Reserve Bank of India became additionally to help the deliberate method of improvement of the Indian economy. In addition to the conventional principal financial institution function, the Reserve Bank of India has released 5-12 months plan withinside the United States and has performed many improvement and advertising capabilities, which can be generally past the scope of the conventional principal financial institution.

Q14) Write the functions of Central Bank.      12

A14) The functions of Central banks are divided into two parts:

A) Monetary Function   B) Non-Monetary Function

A) Monetary Function:

1) Monopoly of notes issue: The main function of the Central Bank is the issue of notes. Central Bank has been authorized to print and issue currency notes. No bank other than the Central Bank enjoys the right of note issue. As the Central Bank is the only authority of note issue, its notes enjoys a distinctive prestige. There is uniformity in the issue of notes and over-issue can avoid. Moreover, it creates confidence among people.

In India, the Reserve Bank of India acts as the Central Bank which enjoys the monopoly of note issue. It has been authorized to print and issue all currency notes except one rupee notes and coins. The RBI adopts what is known as minimum reserve system to print notes. As per 1957 Reserve Bank of India (amendment) Act, the RBI keeps a minimum reserve of Rs. 200crores in gold and foreign securities. Out of this, Rs. 115 crores must be in gold and Rs. 85 crores in foreign securities. The notes issued in excess of Rs. 200 crores are backed by the government rupee securities.

2) Banker to the Government: It acts as the banker, advisor and agent of the government.

1)  As a banker to the government: As a banker of the government it carries out all banking requirements of the government. It accepts deposits and makes payments of all government workers. It transfers funds from one place to another or from one use to another use for the government. It collects taxes on behalf of the government and advances loans to the government. It manages public debts, interest on loans, repayments of loan from International organizations etc. Central Bank advises the governme1nt on monetary problems and implemented the monetary policy of the nation. In India the Reserve Bank of India performs all these functions. Since, its operation is spread all over India. The RBI has appointed the State Bank of India as its sole agent for transaction government business.

2)  As an advisor to the Government: The central bank has complete knowledge about the functioning of the economy and can therefore advice the government on various economic and monetary matters. It advices the government on various financial matters such as framing the budget, controlling inflation, foreign exchange policy, managing fiscal deficit, Monetary policy, etc.

3) Bankers Bank: The Central Bank is the apex body of the banking system. It supervises co-ordinates and controls the operations and activities of the commercial banks. It is the legal tradition that all commercial banks should keep a certain proportion of the demand and time deposits with the Central Bank of the country. This proportion is called cash reserve ratio (CRR).

The Reserve Bank of India also rediscount bill and provides financial assistance to commercial banks. The RBI grants loans to the scheduled banks for a period 90days against eligible bills. The RBI has been empowered to control the activities of all commercial banks under Reserve Bank of India Act 1934 and Banking Regulation Act, 1949.

4) Custodian of Nation’s Foreign Exchange / Determination of Exchange rate:

All foreign exchange reserve of the country is kept by the Central Bank of the country. It enables the Central Bank to exercise control over the foreign exchange. All foreign exchange transaction is done through the Central Bank. The Reserve Bank of India maintains the stability of the rate of exchange, section 40 of the RBI with this function.

It is obligatory for the RBI to buy and sell currencies of the members of the IMF. The Foreign Exchange Regulation Act (FERA) passed in 1947 to give wide powered to RBI to exercise control over foreign exchange. Over the years the act has been amended many times and currently, it is known as Foreign Exchange & Management Act (FEMA).

5) Lender of the last resort: The Central Bank helps the commercial banks when they face a financial crisis. When all the sources are closed, commercial banks can rely (depend) upon the Central Bank as the last resort (option) for securing financial assistance. That is why the Central Bank is called the Lender of the last resort. Sometimes cash reserve of the commercial banks gets exhausted. During such situations, Commercial banks can approach the Central Bank to come to their rescue. The Reserve Bank of India provides the necessary funds and relieves from their burden.

6) Clearing house facility: Central Bank provides clearing facility for the smooth functioning of commercial bank. It is a fact that there are large numbers of commercial banks opening in the economy. Each bank will have claims and counter claims over other. This is not possible for all commercial bank to meet personally to settle their claims. Central Bank solves this problem smoothly by debiting and crediting each bank concerned.

B) Non-Monetary Function:

1) Control & supervisory function: The Central Bank of India also takes the responsibility of supervising the activities for all commercial banks. It issues licenses to banking companies. It can take direct action against the erring commercial banks. It can suspend the activities of such commercial banks or may refuse to renew the license. In India the RBI controls, supervises the functions of all commercial banks.

The Reserve Bank of India Act, 1934 & Banking Regulation Act, 1949 have given RBI the power of supervision and control over commercial and co-operative bank.

2) Promotional & Development function:

a) To promote banking habits: The Central Bank has been playing a more responsible role towards the economic development of our country. Its functions are not confirmed to control of money market alone. In India, RBI exercises its power over commercial banks and puts them under pressure to open branches in the rural sector. This has contributed a lot towards rural banking and to cultivate banking habits among the poor people.

b) Agricultural finance: As a significant step towards rural credit, the RBI created various agencies and institutions for weaker sections under the various schemes for rural development. The arrival of NABARD in India has created a history in the field of rural finance.

c) Industrial finance: Central Bank takes several steps to meet the long term requirements of the industrial finance. The financial institutions like IFCA, SFCA, ICICI, LIC, IDBI, IRCI, SIOBI, etc. play a vital role in boosting the growth in industrial sector in India.

d) Export-Import finance: RBI played a responsible role in the establishment of the Export-Import Bank (EXIM Bank) to provide finance towards export and import activities. The EXIM Bank was establishing in January, 1982 to provide refinance to the commercial banks and financial institutions against their export-import financing activities.

e) Encouraging small savings: To provide opportunities of investment and better returns for small savers, the RBI played an active role in the establishment of UNIT TRUST OF INDIA in 1963.