Easy2Siksha Sample Papers
GNDU Most Repeated (Important) Quesons
B.B.A 3rd Semester
INDIAN FINANCIAL SYSTEM
(Based on 4-Year GNDU Queson Paper Trend Analysis: 2021–2024)
Must-Prepare Quesons (80–100% Probability)
SECTION–A (Structure & Regulatory Framework of Indian Financial System)
1. Overview / Funcons / Structure of Indian Financial System
Appeared in: 2021 (Q1), 2023 (Q1), 2024 (Q1)
Probability for 2025: (100%)
2. Role and Funcons of SEBI (Securies and Exchange Board of India)
Appeared in: 2021 (Q2), 2022 (Q2)
Probability for 2025: (100%)
2025 Smart Predicon Table
(Based on GNDU 2021–2024 Queson Trend)
No.
Queson Topic
Years Appeared
Probability for 2025
1
Overview / Funcons of Indian Financial
System
2021, 2023,
2024
(100%)
2
Role and Funcons of SEBI
2021–22
(100%)
3
Structure and Role of RBI
2022, 2024
(100%)
Easy2Siksha Sample Papers
2025 GUARANTEED QUESTIONS (100% Appearance Trend)
Top 7 Must-Prepare Topics
1. Overview / Structure / Funcons of Indian Financial System
2. Role and Funcons of SEBI
GNDU Most Repeated (Important) Answers
B.B.A 3rd Semester
INDIAN FINANCIAL SYSTEM
(Based on 4-Year GNDU Queson Paper Trend Analysis: 2021–2024)
Must-Prepare Quesons (80–100% Probability)
SECTION–A (Structure & Regulatory Framework of Indian Financial System)
Overview / Funcons / Structure of Indian Financial System
Appeared in: 2021 (Q1), 2023 (Q1), 2024 (Q1)
Probability for 2025: (100%)
Ans: Title: The Indian Financial System – The Lifeline of Our Economy
Imagine the Indian economy as a living human body. It eats, grows, and performs
different functions every day. But just like our body needs blood to circulate nutrients
and oxygen, the economy needs something to circulate money and credit — that’s
where the financial system comes in.
The Indian Financial System (IFS) is like the circulatory system of our economy. It keeps
money flowing between savers (those who have extra funds) and investors or borrowers
(those who need funds). Without it, our economy would become weak, just like a body
without blood flow.
Let’s explore this system step by step — its meaning, structure, and the important
functions it performs in keeping our economy alive and healthy.
1. What is the Indian Financial System?
Easy2Siksha Sample Papers
The Indian Financial System refers to a collection of institutions, markets, instruments,
and services that enable the flow of funds within the country. It acts as a bridge
between people who have surplus money (like households) and people who need
money (like businesses, government, and industries).
In simple words, it’s the network that connects “money savers” and “money users”.
For example, when you deposit your money in a bank, the bank lends that same money
to someone who needs a loan for business or education. This process benefits both sides
— the saver earns interest, and the borrower gets funds to meet their goals.
2. Importance of the Financial System
Without a financial system, money would sit idle in people’s homes. But because of this
system:
• Savings are turned into productive investments.
• Businesses can expand and innovate.
• Governments can fund development projects.
• Individuals can borrow for education, housing, or personal needs.
Thus, the financial system is not just about banks or money — it’s about growth,
opportunities, and economic progress.
3. Structure of the Indian Financial System
Now, let’s dive deeper into how the financial system is structured.
Think of it as a big building with four main pillars:
1. Financial Institutions
2. Financial Markets
3. Financial Instruments
4. Financial Services
Let’s explore each pillar in a simple and interesting way
(A) Financial Institutions – The Key Players
These are the organizations that channelize the flow of money. They collect money
from savers and lend it to those who need it.
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Financial institutions are divided into two main types:
(1) Banking Institutions
These include commercial banks, cooperative banks, and development banks.
They perform basic functions like accepting deposits, providing loans, and facilitating
payment systems.
Examples: State Bank of India (SBI), Punjab National Bank (PNB), HDFC Bank, etc.
(2) Non-Banking Financial Institutions (NBFIs)
These are financial organizations that do not hold a banking license but still offer
financial services like loans, investments, or insurance.
Examples: LIC (Life Insurance Corporation), UTI (Unit Trust of India), NABARD (National
Bank for Agriculture and Rural Development), and Mutual Funds.
Together, these institutions ensure that money is mobilized, invested, and circulated
efficiently across the economy.
(B) Financial Markets – The Meeting Place of Buyers and Sellers of Funds
A financial market is like a bazaar for money — a place where people who need money
meet people who have money.
These markets are divided into two broad categories:
(1) Money Market
This market deals with short-term funds (usually less than one year).
It helps companies and the government meet their short-term liquidity needs.
Main instruments: Treasury Bills, Commercial Papers, Certificates of Deposit, Call
Money, etc.
Example: When a company needs funds for just 3 months to pay salaries or bills, it
borrows from the money market.
(2) Capital Market
This market deals with long-term funds (more than one year).
It helps companies raise money for expansion or infrastructure.
It includes:
• Primary Market – where new securities are issued for the first time (e.g., IPOs).
• Secondary Market – where already issued securities are traded (e.g., Stock
Exchanges like NSE, BSE).
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So, financial markets act as the heart of the system, pumping funds where they are
needed most.
(C) Financial Instruments – The Tools of the Trade
Financial instruments are the products or contracts that are traded in the financial
markets.
They represent a claim on the future income or assets of someone else.
Some common examples include:
• Shares – ownership in a company
• Debentures – loans to a company
• Bonds – long-term debt securities
• Treasury Bills – short-term government securities
• Derivatives – financial contracts based on future prices
These instruments make the financial system flexible and efficient, providing a variety
of options for both savers and investors.
(D) Financial Services – The Supporting Mechanism
Financial services are the facilitators of the system. They help people manage money,
make investments, or reduce risks.
Examples include:
• Investment services
• Insurance services
• Mutual funds
• Credit rating agencies
• Stockbroking and portfolio management
In short, these services guide and support people in using the financial system
effectively.
4. Functions of the Indian Financial System
The Indian Financial System performs several important functions that keep the
economy balanced and growing. Let’s look at them in simple terms:
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(1) Mobilization of Savings
The system encourages people to save money by offering safe and profitable options
like banks, mutual funds, and insurance.
These savings are then collected and invested in productive projects.
(2) Allocation of Funds
It ensures that money flows from areas of surplus (like households) to areas of deficit
(like industries or agriculture).
This helps in efficient use of resources and promotes economic growth.
(3) Facilitation of Credit and Liquidity
The system ensures that credit (loans) is easily available whenever needed.
For example, a businessman can get a loan for expanding his factory, or a farmer can
borrow for buying seeds.
(4) Risk Management
Through financial instruments like insurance and derivatives, the system helps people
and companies manage financial risks such as losses, defaults, or price fluctuations.
(5) Price Discovery
In financial markets, prices of shares and bonds are determined by demand and supply.
This helps investors know the true value of companies and assets.
(6) Promoting Stability
By regulating and monitoring financial activities, institutions like the Reserve Bank of
India (RBI) and Securities and Exchange Board of India (SEBI) ensure economic stability
and transparency.
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(7) Encouraging Economic Development
By promoting investment, innovation, and employment, the financial system plays a key
role in national development.
It helps the government fund infrastructure, education, and welfare schemes.
5. Role of Key Regulators in the Financial System
To maintain order and trust, several regulators oversee the system:
• RBI (Reserve Bank of India): Regulates banking and monetary policy.
• SEBI (Securities and Exchange Board of India): Regulates capital markets and
protects investors.
• IRDAI (Insurance Regulatory and Development Authority of India): Regulates
the insurance sector.
• PFRDA (Pension Fund Regulatory and Development Authority): Oversees
pension funds.
These bodies act like guardians ensuring safety, transparency, and discipline in the
financial system.
6. Conclusion – The Financial System as India’s Growth Engine
To sum up, the Indian Financial System is not just a technical concept — it’s a living
network that keeps our economy breathing.
It converts people’s small savings into large investments, funds businesses, supports
government projects, and provides a safety net through insurance and regulation.
Just like the heart never stops pumping blood, the financial system never stops
circulating money.
It connects dreams to opportunities, savings to investments, and individual efforts to
national progress.
That’s why we can truly call it the lifeline of the Indian economy — strong, dynamic, and
vital for growth.
Easy2Siksha Sample Papers
2. Role and Funcons of SEBI (Securies and Exchange Board of India)
Appeared in: 2021 (Q2), 2022 (Q2)
Probability for 2025: (100%)
Ans: It’s the early 1990s in India. The stock market is buzzing, but it’s also chaotic.
Brokers shout in crowded trading halls, scams shake investor confidence, and small
investors feel lost in a game dominated by a few powerful players. People are afraid: “Is
my money safe? Who is watching over this market?”
Out of this confusion emerges a guardian—the Securities and Exchange Board of India
(SEBI). Established in 1988 and given statutory powers in 1992, SEBI becomes the
watchdog of India’s securities market, ensuring that investors are protected, markets
are fair, and companies play by the rules.
Now, let’s walk through this story step by step: the role and functions of SEBI, explained
in a way that feels alive, simple, and examiner-friendly.
Meaning and Role of SEBI
The Securities and Exchange Board of India (SEBI) is the regulatory authority of India’s
securities market.
• It was created to protect investors, regulate the securities market, and promote
its development.
• Think of SEBI as the referee in a football match. Without a referee, players may
foul, cheat, or fight. With a referee, the game is fair, rules are followed, and
spectators (investors) enjoy the match with confidence.
Preamble of SEBI Act, 1992: “To protect the interests of investors in securities and to
promote the development of, and to regulate the securities market and for matters
connected therewith or incidental thereto.”
Objectives of SEBI
1. Protect Investors: Safeguard small investors from fraud and unfair practices.
2. Regulate Market: Ensure transparency, fairness, and discipline in trading.
3. Promote Development: Modernize and expand the securities market.
Story Note: Imagine a young investor, Priya, who wants to buy shares of Infosys. Thanks
to SEBI, she can trust that the company’s financials are disclosed honestly, brokers
follow rules, and her money is safe.
Functions of SEBI
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SEBI performs three broad functions: Protective, Regulatory, and Developmental. Let’s
explore each with examples.
1. Protective Functions
These are aimed at safeguarding investors.
• Prohibiting Insider Trading: Prevents company insiders from using secret
information to profit unfairly.
• Checking Price Rigging: Stops artificial manipulation of share prices.
• Investor Education: Conducts awareness programs to help investors make
informed decisions.
• Prohibition of Fraudulent Practices: Ensures companies and brokers don’t cheat
investors.
Story Note: In the 1990s, scams like Harshad Mehta’s shook the market. SEBI stepped in
to ensure such manipulations are detected and punished.
2. Regulatory Functions
These are about framing rules and ensuring discipline.
• Regulating Stock Exchanges: SEBI supervises stock exchanges like NSE and BSE.
• Registration of Intermediaries: Brokers, mutual funds, and merchant bankers
must register with SEBI.
• Regulating Takeovers: Ensures fair practices when one company acquires
another.
• Monitoring IPOs: Companies launching Initial Public Offerings must follow SEBI’s
disclosure norms.
• Corporate Governance: Ensures companies follow ethical practices and disclose
accurate information.
Story Note: When Zomato launched its IPO, SEBI ensured that all details—profits, risks,
and future plans—were disclosed to investors before they invested.
3. Developmental Functions
These are about promoting growth and modernization.
• Dematerialization of Shares: Introduced electronic trading (demat accounts),
ending the era of paper share certificates.
• Online Trading Systems: Encouraged digital platforms for faster, transparent
trading.
• Training Programs: For intermediaries like brokers and analysts.
• Research and Development: Promotes studies to improve market efficiency.
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Story Note: Earlier, investors had to carry physical share certificates, which could be lost
or forged. Thanks to SEBI’s push for demat accounts, today buying shares is as easy as
ordering food online.
Powers of SEBI
SEBI has wide powers to enforce its role:
• Quasi-Legislative: Can make rules and regulations.
• Quasi-Executive: Can investigate and take action against violators.
• Quasi-Judicial: Can pass judgments and impose penalties.
Analogy: SEBI is like a one-man army—it can make the law, enforce it, and judge
violations. This ensures quick and effective regulation.
Importance of SEBI
1. Investor Confidence: People invest more when they feel safe.
2. Market Discipline: Prevents scams and malpractices.
3. Transparency: Ensures companies disclose accurate information.
4. Global Recognition: Makes Indian markets attractive to foreign investors.
5. Economic Growth: A healthy securities market supports industrial and economic
development.
Story Note: Foreign investors trust Indian markets because SEBI ensures global
standards of transparency and fairness.
Recap in a Narrative Table
Function Type
Key Activities
Example
Protective
Prevent insider trading, stop price
rigging, investor education
Preventing Harshad
Mehta-type scams
Regulatory
Regulate stock exchanges, register
intermediaries, monitor IPOs
Zomato IPO disclosures
Developmental
Demat accounts, online trading, training
programs
Digital trading revolution
Wrapping the Story
So, the story of SEBI is really the story of how India’s securities market transformed from
a risky, chaotic arena into a modern, transparent, and trustworthy system.
• Its role is to be the watchdog, referee, and guide of the market.
• Its functions—protective, regulatory, and developmental—ensure that investors
are safe, companies are disciplined, and markets grow.
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• Its importance lies in building confidence, transparency, and fairness, which are
the lifeblood of any economy.
Final Analogy: If the securities market is a busy highway, SEBI is the traffic police.
Without it, there would be accidents, chaos, and fear. With it, traffic flows smoothly,
rules are followed, and everyone reaches their destination safely.
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