Here are the constituents of the Indian financial system structure with MDQs and answers:
Financial Institutions
Financial institutions are organizations that facilitate the flow of money between savers and borrowers. They include banks, non-banking financial companies (NBFCs), insurance companies, pension funds, mutual funds, and investment banks.
Mcq 1: Which of the following is not a financial institution?
(a) Bank (b) NBFC (c) Insurance company (d) Mutual fund
Answer: (d) Mutual fund. Mutual funds are investment vehicles that pool money from investors and invest it in a variety of securities. They are not financial institutions in the traditional sense, as they do not lend money to borrowers.
Financial Assets
Financial assets are claims on the issuer. They include money, bonds, stocks, derivatives, and other financial instruments.
Mcq 2: Which of the following is not a financial asset?
(a) Money (b) Bond (c) Stock (d) Car
Answer: (d) Car. A car is a physical asset, not a financial asset. Financial assets are claims on the issuer, while physical assets are tangible objects that have value.
Financial Services
Financial services are the products and services offered by financial institutions to their customers. They include banking services, insurance services, investment services, and foreign exchange services.
Mcq 3: Which of the following is not a financial service?
(a) Banking service (b) Insurance service (c) Investment service (d) Retail service
Answer: (d) Retail service. Retail services are not financial services in the strict sense. They are services that are offered to consumers, such as grocery shopping and clothing shopping.
Financial Markets
Financial markets are where financial assets are bought and sold. They include the stock market, the bond market, the foreign exchange market, and the derivatives market.
Mcq 4: Which of the following is not a financial market?
(a) Stock market (b) Bond market (c) Foreign exchange market (d) Real estate market
Answer: (d) Real estate market. The real estate market is not a financial market in the strict sense. It is a market for physical assets, not financial assets.
Other Constituents
The Indian financial system also has other constituents, such as:
- Regulatory bodies: These are organizations that are responsible for regulating the financial system. They include the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority of India (IRDAI).
- Credit rating agencies: These are organizations that assess the creditworthiness of borrowers. They provide ratings that help investors to assess the risk of lending money to borrowers.
- Financial advisors: These are professionals who provide advice to individuals and businesses on financial matters. They can help people to make informed decisions about their finances.
Conclusion
The Indian financial system is a complex and sophisticated system that plays a vital role in the economy. It is made up of a variety of institutions, markets, and services that facilitate the flow of money and capital. The system is regulated by the RBI and other government agencies to ensure its stability and efficiency.