FIM

• Financial institutions are business organizations that

  • Act as mobilizers and depositories of saving
  • Act as purveyors of credit finance
  • Can be classified into banking and non-banking institution
  • All of the above
• The price at which quantity supplied of a good or service equals the quantity demanded is called the market clearing price.
• The overall increase in price level is called Inflation
• Which of the following NOT a Phases of business cycle

  • Revival
  • Recession
  • Contraction
  • Extension
• Risk is a situation where the objective probability is not known
• Present value is defined as the amount that is equivalent to an amount to be received in future, taking into account the interest that could be earned over the interval of time
• Compartmentalization of financial markets does not imply integration
• The preferred measure of central tendency when the data set is skewed or you are dealing with ordinal data

  Median
• Mode is the value which occurs frequently in a set of observations and around which the other items of the set cluster densely
• Analysis that helps us to determine the degree of relationship between variables

  Correlation
• The primary market contributes directly to supply of additional capital to the market
• The law of demand states that, other things remaining constant, the quantity demanded of a commodity increases when its price falls and decreases when its price rises
• M1 Denotes narrow money
• Changes in government expenditure and taxation designed to influence the pattern and the level of economic activities

  Fiscal Policy
• A budget deficit occurs when the overall expenditure of the government exceeds the overall receipts
• The foreign exchange market is not a physical place; it is an informal, electronically linked network of big banks, foreign exchange brokers and dealers whose function is to bring buyers and sellers together
• Mumbai inter-bank bid and offer rate is calculated daily by the National Stock Exchange of India (NSE)
• Functions of the financial system

  • Provides a payment system for the exchange of goods and services
  • Provides financial capital for long-term capital formation of the government
  • Helps in reduction of asymmetric information and moral hazard problems
  • All of the above
• Deals with the financial transactions and the exchange of money between savers, investors, lenders and borrowers

  Financial System
• • What are made of different intricate and complex models that link financial institutions and markets to provide financial services for various stakeholders operating in the financial system like depositors, lenders, borrowers, government and others
  • Financial Systems
• What is the current medium of exchange or means of payment

  Money
• What is a sum of money to be returned normally with interest; it refers to a debt of economic unit

  Credit/Loan
• What is known as the monetary resources comprising debt and ownership funds of the State, company or person

  Finance
• Classification of Financial Institutions

  • Banking and Non-Banking
  • Intermediaries and Non-Intermediaries
• What provides transactions services, create deposits or credit, subject to legal reserve requirements, can advance credit by creating claims against themselves

  Banks
• Examples of Non-Banking Financial Institutions

  Life Insurance Corporation (LIC)

  Mutual Fund Institutions (MFIs)

  Non-Banking Financial Companies (NBFCs)
• Who intermediate between savers and investors, lend money as well as mobilize savings, their liabilities are towards the ultimate savers, while their assets are from the investors or borrowers

  Intermediaries
• Who do the loan business but their resources are not directly obtained from the savers, example: IFC, NABARD

  Non-Intermediaries
• Classification of Financial Markets

  • Money and Capital Markets
  • Primary and Secondary Markets
• Who deal in the short-term claims (with a period of maturity of one year or less)

  Money Markets
• Deal in the long-term (maturity period above 1 year) claims

  Capital Markets
• Deal in the new financial claims or new securities

  Primary Markets
• Deal in securities already issued or existing or outstanding

  Secondary Markets
• Established when the expected demand for funds (credit) for short-term & long-term investment matches with the planned supply of funds generated out of savings and credit creation

  Equilibrium
• The ultimate focus is on the non-wastefulness of factor use and the allocation of factors to the most socially productive purposes

  Financial Market Efficiency
• The current prices of securities reflect all information about the security (Random Walk Hypothesis), new information regarding securities comes to the market in a random fashion, profit-maximizing investors adjust security prices rapidly to reflect the effect of new information. The expected returns implicit in the current price of a security should reflect its risk

  Efficient Market Hypothesis (EMH)
• Types of Market Efficiency

  • Information Arbitrage Efficiency
  • Fundamental Valuation Efficiency
  • Full Insurance Efficiency
  • Functional or Operational Efficiency
  • Allocational Efficiency
• Functional or Operational Efficiency


  The market which minimises administrative and transactions costs, and which provides maximum convenience (minimum inconvenience) to borrowers and lenders
• Allocational Efficiency


  When financial markets channelise resources into those investment projects and other uses where marginal efficiency of capital adjusted for risk differences is the highest
• Levels of Market Efficiency

  • Weak form - prices reflect all security-market information
  • Semi strong form - prices reflect all public information
  • Strong form - prices reflect all public and private information