1. The price in financial markets is known as “rate of interest”. Under conditions of perfect competition, the equality between total expected demand for funds and total planned
supply of funds determines the equilibrium rate of interest.
2. The intervention between authorities in the form of administering interest rates results in
excess demand or excess supply of funds, which in turn requires the official policy of direct allocation of financial resources.
3. The supply of funds depends on aggregate savings and credit creation by the banking system, while the need for funds depends upon demand for investment, consumer durables,
housing and so on.
4. The functions of a financial system are to establish a bridge between savers and investors and thereby encourage savings and investment, provide finance in anticipation of savings, enlarge markets over space and time and allocate financial resources efficiently for socially
desirable and productive purposes. The ultimate goal of the financial system is to accelerate the rate of economic development.
5. Deficient financial markets are characterized by the absence of information-based game, by correct evaluation of assets, by maximization of convenience and minimization of transaction costs and maximization of marginal efficiency of capital.
6. In reality, the contribution of financial system to growth is highly constrained because it does not work efficiently and capital is not the most important barrier to growth. The role of finance in development is believed to be secondary by many experts.
7. A framework to evaluate the working of any financial sector must include economic, commercial as well as social and ethical criteria.
8. Financial innovations refer to wide ranging changes in the financial system. The introduction of new financial institutions, markets, instruments, services, technology,
organization and so on.
9. Financial engineering connotes skillful development and use of new financial technology creates solutions and tools to cope with financial changes. It involves construction,
designing, re-construction of innovative financial instruments, institutions and processes
to reduce risk and to maximize profits quickly.
10. Financial revolution means that the magnitude, speed and spread of changes in the financial sector are simply phenomenal.
11. The markets that attract funds in large volume and from all types of investors are known as broad financial markets.
12. The markets which provide opportunities for sufficient orders at fine rates below and above the market price are called deep financial markets. The underdeveloped markets due to government regulations and controls are termed as swallow financial markets.
13. Financial repression exists when the regularity polices of the government distort interest
rates, discourage savings, reduce investment and misallocate resources.