Test: Structure and Functions of Financial Institutions - Bank Exams MCQ

Term Money refers to deposits or loans with a maturity period that exceeds 14 days. It is a common financial asset used for various financing needs, providing flexibility for both borrowers and lenders in managing their cash flows.

The financial system provides avenues for risk mitigation, primarily through insurance services. These services help individuals and businesses protect themselves against potential financial losses, enabling them to take calculated risks in their investments.

The payments system is crucial for facilitating secure transactions within the financial system. It employs various technologies and methods, such as NEFT and IMPS, to ensure smooth, efficient, and safe financial transactions among individuals and institutions.

Moneylenders are part of the unorganized sector, which operates without regulatory oversight. In contrast, entities such as commercial banks, NBFCs, and insurance companies function within the organized sector, adhering to regulations set by bodies like the Reserve Bank of India.

Financial institutions mobilize savings from various sources and direct these funds towards borrowers who utilize them for productive purposes. This process enhances economic development by fostering investment in businesses, which can lead to job creation and improved living standards.

The unorganized sector is characterized by the absence of regulatory oversight, making it less formalized. This sector typically includes entities like moneylenders and chit funds, which often cater to individuals who may not have access to traditional banking services.

The financial system plays a critical role in ensuring widespread access to credit facilities, offering loans to both individuals and businesses. This function supports various financial needs, including personal expenses and business investments, which are vital for economic development.

The capital market is specifically designed to finance long-term investments, with transaction durations exceeding one year. This market facilitates the buying and selling of securities such as stocks and bonds, which are essential for funding growth and expansion of businesses.

Financial inclusion is significant as it aims to provide access to financial services to all sectors of society, including those in remote areas and underdeveloped regions. This inclusivity is essential for empowering individuals and businesses, ultimately fostering economic growth and reducing poverty.

The Indian financial system primarily facilitates the flow of funds between savers, who have surplus capital, and investors, who need capital for various purposes. This interaction is crucial for supporting business activities and personal financial needs, thus driving overall economic growth.