Financial System Of Bangladesh Essay

4899 words - 20 pages

1. Financial System of Bangladesh:
Financial system is a Set of institutional arrangement through which financial surpluses will be mobilized from the surplus units and will be transferred to the deficit units. It is a framework for describing set of markets, organisations, and individuals that engage in the transaction of financial instruments (securities), as well as regulatory institutions.
The basic role of Financial System is essentially channelling of funds within the different units of the economy – from surplus units to deficit units for productive purposes.

There are mainly three components of financial system. ...view middle of the document...

In this scenario borrowers and lenders never meet directly, but lenders provide funds to a financial intermediary such as a bank and those intermediaries independently pass these funds on to borrowers.
Financial markets can be categorized as follows:
* Debt vs Equity markets
* Money vs Capital Markets
* Primary vs Secondary markets
* Exchange vs Over the Counter (OTC)
Financial markets are split into debt and equity markets.
Debt market: Debt titles are the most commonly traded security. In these arrangements, the issuer of the title (borrower) earns some initial amount of money (such as the price of a bond) and the holder (lender) subsequently receives a fixed amount of payments over a specified period of time, known as the maturity of a debt title.
* Debt titles can be issued on short term (maturity < 1 yr.), long term (maturity >10 yrs.) and intermediate terms (1 yr. < maturity < 10 yrs.).
* The holder of a debt title does not achieve ownership of the borrower’s enterprise.
* Common debt titles are bonds or mortgages.
Equity market: Equity titles are somewhat different from bonds. The most common equity title is (common) stock.
* First and foremost, an equity instruments makes its buyer (lender) an owner of the borrower’s enterprise.
* Formally this entitles the holder of an equity instrument to earn a share of the borrower’s enterprise’s income, but only some firms actually pay (more or less) periodic payments to their equity holders known as dividends. Often these titles, thus, are held primarily to be sold and resold.
* Equity titles do not expire and their maturity is, thus, infinite. Hence they are considered long term securities.
Money market: It is a market which deals short-term instruments and securities, generally where temporary surpluses are transferred from surplus unit to temporary deficit unit.
Capital market: It is a market for long-term securities, i.e., securities having a maturity period of one year or more.

Primary market: Primary markets are markets in which financial instruments are newly issued by borrowers.
Secondary market: Secondary markets are markets in which financial instruments already in existence are traded among lenders. Secondary markets can be organized as exchanges, in which titles are traded in a central location, such as a stock exchange, or alternatively as over-the-counter markets in which titles are sold in several locations.
There are two components of the secondary market:
Exchange-traded market: In this market trading takes place over a trading cycle in stock exchanges. Recently, the derivatives market (exchange traded) has come into existence.

Over-the-counter (OTC) market: The government securities market is an OTC market. In an OTC market,...

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