You are on page 1of 6

c c  





Submitted To

Muhammad Enamul Haque

Assistant Professor
School of Business
United International University

Submitted By

Sec: C

Taslema Akhter 111 072 100

Tania Hannan Nishi 111 072 034
S. M. Ashik Ahmed 111 072 084
Mahmudul Hassan 111 083 015
Nasir Ahmed 111 071 125

Date: 7th June, 2011

United International University
inancial Institution:

Financial institutions are those organizations that are involved in providing various types
of financial services to their customers. The financial institutions are controlled and
supervised by the rules and regulations delineated by government authorities. Any
institution that collects money and puts it into assets such as stocks, bonds, bank deposits,
or loans is considered a financial institution.

Some of the financial institutions also function as mediators in share markets and debt
security markets. There the principal function of financial institutions is to collect funds
from the investors and direct the funds to various financial services providers in search
for those funds.

These are the various Financial Institutions:

@ Banks
@ Stock Brokerage Firms
@ Non Banking Financial Institutions
@ Building Societies
@ Asset Management Firms
@ Credit Unions
@ Insurance Companies

Financial institutions deal with various financial activities associated with bonds,
debentures, stocks, loans, risk diversification, insurance, hedging, retirement planning,
investment, portfolio management, and many other types of related functions. With the
help of their functions, the financial institutions transfer money or funds to various tiers
of economy and thus play a significant role in acting upon the domestic and the
international economic scenario.

Financial institutions can be either private or public in nature. The most common forms of
financial institutions can be categorized into the following types:

@ Business finance company

@ Mortgage finance company
@ Car finance company
@ Personal finance company
@ Personal loan finance company
@ Home finance company
@ Corporate finance company

Thus, it can be concluded that a financial institution is that type of an institution, which
performs the collection of funds from private investors and public investors and utilizes
those funds in financial assets. The functions of financial institutions are not limited to a
particular country, instead they have also become popular in abroad due to the growing
impact of globalization.
Types of inancial Institution:
Today, there are many different types of financial institutions providing a wide range of
services to individual consumers and businesses alike. Some of these institutions offer
general services while others are more specialized in what they offer. There are mainly
two types of financial institutions: depository institutions and non depository institutions.

Depository banks and credit unions which pay interest on deposits from the interest
earned on the loans, and Non-depository insurance companies and mutual funds (unit
trusts) which collect funds by selling their policies or shares (units) to the public and
provide returns in the form periodic benefits and profit payouts


Depository Non Depository

Institution Institution

X Bank X Insurance Companies

X Credit Unions X Brokerage Firms
X Mutual Fund Companies

Depository institutions:

A depository financial institution is one that specializes in depository lending, and the
services offered by these institutions are a bit different from that of other financial service
providers. The depository financial institutions are also known as deposit-taking financial

The primary functions of these institutions are to accept deposits and to use the money
collected for lending purposes. Services of depository financial institutions are: The
lending activities of depository financial institutions basically include channelizing funds
for mortgage loans, commercial loans and real estate loans. Depository financial
institutions; such as banks and credit unions.

Banks: Perhaps the most common of all financial institutions is the bank. Banks provide
the most simplistic of financial services used by a majority of consumers. Checking and
savings accounts are staples of most banks, along with relatively safe investment
opportunities such as Certificates of Deposit. Banks also offer services such as different
types of loans and mortgages for qualified individuals and businesses. For many people,
the local bank is the first and possibly only financial institution they will ever do business

Credit Unions: Credit unions are financial institutions that function in a manner that is
very similar to banks. What is a little different with these institutions is that they normally
cater to a more exclusive group of clients. Membership in a credit union often is based on
working in a given profession, being a member of a specific organization, or living in a
given geographic area. The range of services provided by a credit union is very much like
those offered by banks, and normally carries the same type of coverage against loss,
although this may vary depending on national laws that apply.

Non Depository institutions:

Non-Depository Financial Institution is the Government or the private organizations, such

as building society, insurance company, investment trust, or mutual fund, or unit the trust
serving as an intermediary between the savers and borrowers, but not accepting time
deposits. Such institutions fund their lending activities either by selling securities, bonds,
notes, stocks and shares, or insurance policies to the public. Their liabilities, depending
on the liquidity of the liability, may fall under one or more money supply definitions, or
classified as near money. It is the financial institution that funds their investment
activities from the sale of securities or insurance.

Non depository institutions; such as insurance companies, brokerage firms, and mutual
fund companies.

Insurance Companies: It is a contract, or policy, whereby, for a stipulated consideration,

or premium, one party (the insurer or underwriter) promises to compensate the other (the
insured or assured) for loss on a specified subject (insurable interest) by specified perils
or risks.

Brokerage irms: Brokerage firms, also known as broker-dealers, are licensed by the
Securities and Exchange Commission (SEC) to buy and sell securities for clients and for
their own accounts.

When a brokerage firm sells securities it owns, it is said to be acting as a principal in that

Some brokerage firms only conduct transactions, while others also offer different types of
investment advisory services. Brokerage firms derive their profit from commissions on
orders given. That is, they usually collect a percentage of the value of each transaction,
though some charge flat fees. Clients may give orders in a variety of ways. One may meet
with a broker, call on the telephone, or give orders over the Internet.
Brokerage firms handle two main types of brokerage accounts: advisory accounts and
discretionary accounts. Brokers are only allowed to conduct transactions on advisory
accounts on the specific orders of the account holder, or under very specific instructions.
Brokerages have much more leeway over discretionary accounts, conducting transactions
not prohibited by the account holder in accordance with the holder's investment goals and
the prudent man rule. In practice, most brokerage firms are in fact broker-dealer firms.
Most brokerage firms must register with the SEC.

Mutual und Companies: A mutual fund is a company that brings together money from
many people and invests it in stocks, bonds or other assets. The combined holdings of
stocks, bonds or other assets the fund owns are known as its Ñ   . Each investor in
the fund owns shares, which represent a part of these holdings.

Investors purchase shares in the mutual fund from the fund itself, or through a broker for
the fund, and cannot purchase the shares from other investors on a secondary market.

Mutual funds generally sell their shares on a continuous basis, although some funds will
stop selling when, for example, they reach a certain level of assets under management.

The investment portfolios of mutual funds typically are managed by separate entities
known as "investment advisers" that are registered with the SEC. In addition, mutual
funds themselves are registered with the SEC and subject to SEC regulation.

How these are performing in the financial system

What is financial system?
How financial system works
The financial system in Bangladesh includes Bangladesh Bank (the Central Bank),
scheduled banks, non-bank financial institutions, microfinance institutions (MFIs),
insurance companies, co-operative banks, credit rating agencies and stock exchange.
Among scheduled banks there are 4 nationalized commercial banks (NCBs), 5 state-
owned specialized banks (SBs), 30 domestic private commercial banks (PCBs), 9 foreign
commercial banks (FCBs) and 29 nonblank financial institutions (NBFIs) as of December
2006. However, Rupali Bank, an NCB is being sold to a foreign buyer, and once this
transaction is completed, the country will have only 3 NCBs. Which are being
corporative. Over and above the institutions cited above, three development financial
institutions namely House Building Finance Corporation (HBFC), Ansar- VDP Unnayan
Bank and Karma Shangsthan Bank are operating in Bangladesh, all of which arestate