Indian Financial System

Intermediary participants in the derivatives market

The intermediary participants in the derivatives market are as follows:

1. Brokers

For any purchase and sale, brokers perform an important function of bringing buyers and sellers together. As a member in any futures exchanges, may be any commodity or finance, one need not be a speculator, arbitrageur or hedger. By virtue of a member of a commodity or financial futures exchange one get a right to transact with other members of the same exchange. This transaction can be in the pit of the trading hall or on online computer terminal. All persons hedging their transaction exposures or speculating on price movement, need not be and for that matter cannot be members of futures or options exchange.… Read the rest

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Trading participants in the derivatives market

The trading participants in the derivatives market are as follows:

1. Hedgers

The process of managing the risk or risk management is called as hedging. Hedgers are those individuals or firms who manage their risk with the help of derivative products. Hedging does not mean maximizing of return. The main purpose for hedging is to reduce the volatility of a portfolio by reducing the risk.

2. Speculators

Speculators do not have any position on which they enter into futures and options Market i.e., they take the positions in the futures market without having position in the underlying cash market. They only have a particular view about future price of a commodity, shares, stock index, interest rates or currency.… Read the rest

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Equity derivatives in India

In the decade of 1990’s revolutionary changes took place in the institutional infrastructure in India’s equity market. It has led to wholly new ideas in market design that has come to dominate the market. These new institutional arrangements, coupled with the widespread knowledge and orientation towards equity investment and speculation, have combined to provide an environment where the equity spot market is now India’s most sophisticated financial market. One aspect of the sophistication of the equity market is seen in the levels of market liquidity that are now visible. The market impact cost of doing program trades of Rs.5 million at the NIFTY index is around 0.2%.… Read the rest

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Financial Sector Reforms in India

In India, a decade old on-going financial reforms have transformed the operating environment of the finance sector from an administrative regime to a competitive market base system.  Since mid-1991, a number of reforms have been introduced in the financial sector in India.  Rangarajan once noted that domestic financial liberalization has brought about the deregulation of interest rates, dismantling of directed credit, reforming the banking system, improving the functioning of the capital market, including the government securities market.  The main emphasis on the financial sector reform has been on the banking system so as to improve the performance of public sector banks.… Read the rest

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Committee on Indian Banking Sector Reforms: Narasimham Committee Report I & II

The banking sector reforms in India were started as a follow up measures of the economic liberalization and financial sector reforms in the country. The banking sector being the life line of the economy was treated with utmost importance in the financial sector reforms. The reforms were aimed at to make the Indian banking industry more competitive, versatile, efficient, productive, to follow international accounting standard and to free from the government’s control. The reforms in the banking industry started in the early 1990s have been continued till now.

 The Narasimham Committee laid the foundation for the reformation of the Indian banking sector.… Read the rest

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Role of development banks in the Indian economy

Capital Formation:

The significance of Development Finance Institutions or DFIs lies in their making available the means to utilize savings generated in the economy, thus helping in capital formation. Capital formation implies the diversion of the productive capacity of the economy to the making of capital goods which increases future productive capacity. The process of Capital Formation involves three distinct but interdependent activities, viz., saving financial intermediation and investment. However, poor country/economy may be, there will be a need for institutions which allow such savings, as are currently forthcoming, to be invested conveniently and safely and which ensure that they are channeled into the most useful purposes.… Read the rest

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