What is Currency?

Currency is a liquid financial asset. It represents notes and coins in circulation, which are of fixed nominal values and have no dates of repayment. Issued notes and coins are considered as the liabilities of the RBI (Central Bank).

Classification

Financial instruments may be classified from different angles. One classification is Financial Asset and Other Financial Instruments. The criteria for this classification is liquidity and legal characteristics.

Financial Assets

• Currency
• Deposits
• Securities other than shares
• Shares and other equity
• Loans and borrowings
• Other accounts receivable / payable
• Financial derivatives

Other Financial Instruments

• Letters of guarantee
• Letters of credit
• Financial commitments
• Pledged financial assets

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What is Financial Instruments?

Financial Instruments form another important element of a financial system.
Financial instruments are financial contracts of different nature made between institutional units. These comprise the full range of financial claims and liabilities between institutional units, including contingent liabilities like guarantees, commitments, etc.
The concept of financial instrument is wider than the concept of financial
asset. Financial assets are contracts that do not contain contingency. Financial
asset is defined as any contract from which a financial claim may derive for one
party and a financial liability or participation in equity for another.

What is Financial Markets?

Financial Market is an institution or arrangement that facilitates the exchange of financial instruments, including deposits, and loans, corporate stocks and bonds, Government bonds and more exotic instruments such as options and futures contacts. The market, which deals with trading of financial instruments like financial claims, assets and securities is known as financial market. According to Eugene F. Brigham, Financial market is “the place where people and organisations wanting to borrow money are brought together with those having surplus funds.” There is no specific place to indicate a financial market. Wherever a financial transaction takes place, it is deemed to be a financial market.
Existence of a dynamic and a resilient financial market is the most important requisite for the development of an economy. The financial market helps the economy in many ways such as mobilisation of savings. Investment of such funds, contributes to the growth of the nation by converting the idle and scattered funds to productive purposes. It is also helpful for industrial growth, which is a must for economic development to become a welfare state.
Financial markets are the centres which provide facilities for buying and selling of financial claims and services. Financial products are traded in these markets by the corporations, financial institutions, individuals and Government, either directly or indirectly through brokers and dealers.

• Customer to Bank E banking : Basically E-banking is Internet based. Customers can easily access all important information relating to their deposits, remittance, and payments etc through internet at any time. Number of E banking facilities are available to customers now. For example ATM, credit cards, Electronic Data Interchange. EFT ete Likewise a customer can check his account statement at any time. He can transfer funds, Open a fixed deposit, Pay utility bills and recharge prepaid mobile/DTH and a lot more.
• Bank-to-Bank E-Banking : It is related with interbank transactions which are done between banks. This type of E-banking is driving extra nets, which is restricted to banks only. Hence it is well secured. Therefore there is less unauthorized access.
• Electronic Central Banking : (All banks within the control of a central bank are to be interconnected on extranet to facilitate clearing of cheques, management of cash reserves discounting of bills, open market operations, etc. The central bank can be connected with the Government treasury on extranet to carry out its functions as an agent of the Government. Likewise the central banks of all countries can be inter-linked with the I.M.F. World Bank, New Development Bank and other international financial institutions through extranets.
• Intranet Procurement : An intranet is meant for the exclusive use of the organization and its associates. It is protected from unauthorized access with security systems such as firewalls. For the internal transactions related to a bank, between the bank and its branches and subsidiaries. Intranet procurements of banking are required. At the same time. Extranet permits a bank to have full control over the users of intranet and the information to be transmitted.

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Dimensions of E-banking

E banking means conducting banking functions electronically. It helps to eliminate paper based transactions. E banking operates through internet, extranet and intranet. E banking should have at the least the following dimensions.
(1) Customer to Bank E-banking
(2) Bank to bank E- banking
(3) Electronic central banking
(4) Intranet procurement