FINANCIAL INSTITUTIONS

PRESENTED BY- SHASHI PRATAP SINGHB.A- ECONOMICS (HONORS)

DEFINITION In finance and economics, a financial institution is an institution that provides financial services for its clients or members such as investments, loans and deposits.

FUNCTIONS Depository institutions:- deposit-taking institutions that accept and manage

deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies;

Contractual institutions:- insurance companies and pension funds

Investment institutions:- investment banks, underwriters, brokerage firms.

TYPES

Commercial banks

Investment banks

Insurance companies

Brokerages

Investment companies

Credit unions

Provident funds

Mutual funds

Saving and loan

associations

Trust companies

COMMERCIAL BANKS They accept deposits and provide security and convenience to their

customers. Commercial banks also make loans that individuals and businesses use to

buy goods or expand business operations. The commercial bank also deals in basic investment products such as

saving accounts and certificates of deposit. Banks also serve often under-appreciated roles as payment agents within a

country and between nations.

INVESTMENT BANKS It is a financial intermediary that performs a variety of services for

businesses and some governments. These services include underwriting debt and equity offerings, acting as an

intermediary between an issuer of securities and the investing public, making markets, facilitating mergers and other corporate reorganizations, and acting as a broker for institutional clients.

They may also provide research and financial advisory services to companies.

As a general rule, investment banks focus on initial public offerings (IPOs) and large public and private share offerings

INSURANCE COMPANIES The insurance company is one which signs a contract, which is represented

by a policy, and provides an entity or individual with financial protection or reimbursement against any losses that may occur.

The insurance company is instrumental as a means of protection of financial losses, both major as well as small, resulted from damage to the insurer or his or her property.

There are a number of insurance polices; however, the most important ones are health insurance, life insurance, home insurance and vehicle insurance.

Services offered include: Insurance services, Securities, Buying or selling service of the real estates, Mortgages, Loans, Credit cards and Check writing.

BROKERAGES They act as an intermediary between buyers and sellers to facilitate securities

transactions. They are compensated via commission after successful transaction. A brokerage firm serves a clientele of investors and employs a number of

stockbrokers through whom they trade public stocks and other securities. They also provides investment advice, portfolio management and trade execution. Full service brokerages offer estate planning services, tax advice and

consultations. A discount brokerage charges less money than the traditional brokerage and here

clients conduct trades via computerized trading systems. Services offered include: Insurance, Securities, Mortgages, Loans, Credit

cards, Money market and Check writing.

INVESTMENT COMPANIES It is a corporation or a trust through which individual invest in diversified,

professionally managed portfolios of securities by pooling their funds with those of other investors.

Investment companies are business entities, both privately and publicly owned, that manage, sell, and market funds to the public.

They typically offer investors a variety of funds and investment services, which include portfolio management, recordkeeping, custodial, legal, accounting and tax management services.

CREDIT UNIONS These are not-for-profit financial cooperative associations where large

numbers of people are voluntary associated for saving and borrowing purposes.

These are established and operated by the members. In a credit union the members pool their saving so that they can provide

loan money to each others. Further, the profits that are achieved are employed to fund projects and

services for the overall benefit of the community. Some of the services offered by the credit unions are online banking,

savings accounts, checking accounts, credit cards and certificates of deposit).

PROVIDENT FUNDS They accept saving to provide pension and other kind of retirement

benefits to the employee of government units and other corporations. They are basically funded by corporation and government units for their

employees, which make a periodic deposit to the pension fund.

MUTUAL FUNDS A mutual fund is a professionally managed investment fund that pools money from

many investors to purchase securities. It is most commonly applied to open-end investment companies, which are collective

investment vehicles that are regulated and sold to the general public on a daily basis.  Mutual funds are operated by money managers, who invest the fund's capital and

attempt to produce capital gains and income for the fund's investors. One of the main advantages of mutual funds is they give small investors access to

professionally managed, diversified portfolios of equities, bonds and other securities. Each shareholder, therefore, participates proportionally in the gain or loss of the fund. Mutual funds invest in a wide amount of securities, and performance is usually tracked

as the change in the total market cap of the fund, derived by aggregating performance of the underlying investments.

SAVING AND LOAN ASSOCIATIONS A savings and loan association (S&L) is a financial institution that

specializes in savings deposits and mortgage loans, and has become one of the primary sources of mortgage loans for homebuyers today.

It offers mortgage services to people from the savings and deposits received from private investors.

Privately or locally managed financial institutions Uses individuals’ deposits to make long-term amortized loans to

home buyers. Disperses loans for home repairs, construction, and refinancing

TRUST COMPANIES A trust company is a legal entity that acts as a agent or trustee on behalf of a person or

business entity for the purpose of administration, management and the eventual transfer of assets to a beneficial party.

A trust company does not own the assets its customers assign to its management, but it may assume some legal obligation to take care of assets on behalf of other parties.

A trust company or trust department is usually a division or an associated company of a commercial bank.

Trust companies offer a variety of services, with the most common being wealth management in the mode of becoming a fiduciary or agent.

Trust companies offer asset management services such as bill pay, check writing and other features.

Trust companies also offer brokerage services. Depending on the level of service needed, some companies can build financial plans for its clients for additional fees. Trust companies also offer a variety of estate-oriented services, such as guardianship, estate settlement and non-financial asset management.

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