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Financial Environment
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Financial Environment
Financial Environment
A financial environment is a part of an economy with the major players being firms, investors, and markets.
Introduction
Components
The financial environment is composed of three key components:
(1) Financial managers
(2) Financial markets
(3) Investors (including creditors).
Indian Rupee
Indian Money
The Indian rupee (symbol ; code: INR) is the official currency in the Republic of India. The rupee is subdivided into 100 paise.
The issuance of the currency is controlled by the Reserve Bank of India. The Reserve Bank manages currency in India and derives its role in currency management on the basis of the Reserve Bank of India Act, 1934.
Indian Rupee
Rupee
Conversion Rate
The conversion rate represents the relative value between two currencies. It is essentially the price measure of one currency against another. As the rate changes, one country's money can become weaker or stronger against other currencies.
Conversion Rate
1 Emarati dirham = 22.67 indian Rupees
Capital Market
Capital markets refer to the venues where funds are exchanged between suppliers and those who seek capital for their own use.
These venues may include the stock market, the bond market, and the currency and foreign exchange (forex) markets. Most markets are concentrated in major financial centers such as New York, London, Singapore, and Hong Kong.
Functions
Economic Growth
Promotes Saving Habits
Stable and Systematic Security Prices
Availability of Funds
Risk Management
Constituents
The capital market is mainly categorized into:
Primary Market:
The primary market mainly deals with new securities that are issued in the stock market for the first time.
Secondary Market:
It is the market where the trading of the securities actually takes place, thus it is also referred to as the stock market.
For Example : Market Regulator, stock exchange
Stock exchange
Stock Exchange
The term stock market refers to several exchanges in which shares of publicly held companies are bought and sold. Such financial activities are conducted through formal exchanges and via over-the-counter (OTC) marketplaces that operate under a defined set of regulations.
For example : Bombay Stock Exchange (BSE), National Stock Exchange (NSE).
How it works?
How does it work?
Capital market reforms and development
Capital market reforms and development
Capital market reform allows capital markets to embrace new ideas and techniques that affect the capital market.
Reforms established in India and
their developments are :
- Establishment of SEBI
- Establishment of Creditors Rating Agencies
- Increased Merchant Banking Activities
- Indian Economy's Honest Performance
- Rising Electronic Transactions
Establishment of Creditors Rating Agencies
Three creditors rating agencies have been set up, namely, The Credit Rating Information Services of India Limited (CRISIL - 1988), the Investment Information and Credit Rating Agency of India Limited (ICRA - 1991), and Credit Analysis and Research Limited (CARE).
Establishment of Creditors Rating Agencies
Increased Merchant Banking Activities
In recent years, many Indian and foreign commercial banks have established merchant banking divisions. These divisions offer financial services such as underwriting, organising issues, and consulting.
Increased Merchant Banking Activities
Indian Economy's Honest Performance
In recent times, the massive entry of FIIs into the Indian capital market has resulted in a positive appreciation for Indian investors.
Indian Economy's Honest Performance
Rising Electronic Transactions
As a result of technological advancements in recent years, the physical transaction with regards to the amount of paperwork is reduced.
Rising Electronic Transactions
SEBI
SEBI
SEBI stands for Securities and Exchange Board of India.
The SEBI is the regulatory authority formed under Section 3 of the SEBI Act 1992 to protect the interests of investors in securities, promote the development of, and regulate, the securities market, and for matters associated with and incidental to the securities market.
Objectives of SEBI
Objectives
- To protect the interests of Indian investors in the securities market.
- To educate investors about securities markets and their intermediaries.
- To prohibit fraudulent and unfair trade practices within the securities market and related to it.
- To monitor company takeovers and acquisition of shares.
- To regulate the tasks entrusted to depositors, credit rating agencies, custodians of securities, foreign portfolio investors and other participants.
Functions of SEBI
Functions
1. Protective Function
2. Regulatory Function
3. Development Function
Powers of SEBI
Powers
- Quasi-judicial Powers
- Quasi-executive Powers
- Quasi-Legislative Powers
Structure of SEBI
Structure
Industrial financial institutions (IDBI, SIDBI, ICICI, IFCI etc.)
Industrial financial institutions (IDBI, SIDBI, ICICI, IFCI etc.)
A industrial financial institution (IFI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange for industries.
Few institutions are:
- IDBI
- SIDBI
- ICICI
- IFCI
Industrial Development Bank of India (IDBI)
Thc IDBI was established in 1964 by an Act of Parliament. Like any other Developmental Financial Institution.
IDBI also provides term finance for the formation of fixed assets to the Industry
IDBI
Small Industries Development Bank of India (SIDBI)
SIDBI
- SIDBI was established on April 2, 1990 in order to promote, finance and develop the industrics in the small-scalc sector.
- The business domain of SIDBI consists of small-scale industrial units, which contribute significantly to the national economy in terms of production, employment and exports.
- In addition, SIDBI's assistance flows to sectors like transport, health care and tourism.
Industrial Credit and Investment Corporation of India Ltd. (ICICI)
ICICI
- ICICI Ltd. was set up under the aegis of the Government of India, the World Bank and the representatives of private industry on January 5, 1955 as a public limited company.
- The primary objective of ICICI at the time of setting up was providing foreign currency loans to industrial projects and to encourage & assist industrial development and investment in India.
Industrial Finance Corporation of India Ltd. (IFCI)
IFCI
- IFCI Ltd. was established on 1" of July 1948 as a statutory Corporation, to pioneer institutional credit to medium and large industries.
- This has been converted into a Public limited company in the year 1993.
- IFCI was the India's First Development Financial Institution.
Conclusion
- A financial environment is a part of an economy with the major players being firms, investors, and markets.
- The issuance of the currency is controlled by the Reserve Bank of India.
- The SEBI is the regulatory authority formed under Section 3 of the SEBI Act 1992