The DAILY OBSERVER Tuesday, March 16, 2021 Page 25
Lesson 23
with
Treisa Cornwall
FINANCIAL INSTITUTIONS
A financial institution is a company engaged in the
business of dealing with financial and monetary
transactions, such as deposits, loans, investments
and currency exchange.
Financial institutions are otherwise known as
banking institutions or corporations that provide
services such as intermediaries of financial
markets.
FINANCIAL REGULATIONS
Financial services are of utmost importance to a
country’s economy and must be monitored and
regulated. They need to be supervised for three
main reasons:
● To protect individuals – people need
to know their monies are protected and
available when needed.
● To protect businesses – businesses must
know accounting, money management,
or insurance services they receive are
regulated.
● To protect the economy – there needs
to be healthy competition among varying
financial service providers, this ensures
that there are sufficient choices and value
for money.
CENTRAL BANK
A central bank or monetary authority is set up by
a national government to issue notes and coins,
control the money supply and regulate the banking
system.
Functions of the Central Bank
● Issue notes and coins – has a monopoly
over the issue of a country’s currency.
● They act as the banks’ banker – holds
deposits for commercial banks and other
financial institutions.
● They act as the government’s banker –
allow the government to receive and make
payments.
● They are the lender of the last resort – the
last person the government will borrow
money from when all other sources fail.
● They operate the government’s monetary
policy – the central bank will raise or lower
interest rate.
● Banker to the Government
As banker to the government the central bank has
responsibility for the following:
● Setting a bank or minimum lending rate
● Facilitating open market operations
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● Minimum reserve and liquid assets ● Financial advice

requirements
● Credit controls
● Special deposits
● Moral suasion.
COMMERCIAL BANKS
A commercial bank is a financial institution that
accepts deposits, make loans to individuals and
businesses. The bank also provides services such
as processing payments. Commercial Banks are
owned by shareholders.
Roles of Commercial Banks
● Accepting deposits from customers.
● Providing advance loans to individuals and
firms.
● Processing payments made and received
by customers.
● Issuing bank drafts and bank cheques.
● Investment services and safekeeping of
documents and other items in safe deposit
boxes.
Services offered by Commercial Banks
● Night safe facilities
● Safety deposit boxes
● ATM/ABM services
● Traveller’s cheques
● Foreign exchange and purchase sales
● Bank draft or manager’s cheque
● Credit reference – giving information about
your credit records.
● Letters of credit – issued by one bank to
another serving as a guarantee for payment
made by individuals.
● Insurance
● Debit cards/Credit cards
● Online banking
NON-FINANCIAL INSTITUTIONS
● Credit unions: this is an organisation
that enables members within a particular
community to make savings and access loans
at reasonable rates of interest. They are
operated by members.
● Insurance companies: this is a company
that provides insurance to individuals and
businesses. Insurance provides protection
from financial loss, businesses take out
insurance to protect against premises, vehicles
and equipment, fire, theft.
● Building societies: this financial institution
is owned by members and specialises in
mortgage lending. Building societies are now
competing with commercial banks and provide
a wide range of financial services.
● Merchant banks: they offer specialised
financial services to business customers
such as arranging public issues of shares for
companies as well as arranging public issue
of shares for companies and large loans to
expanding businesses.
● Micro lending agencies: these financial
institutions provide micro-credit. This includes
small loans and access to other financial
services to people with low or no regular income
and few valuable assets. Many poor people
can access loans from micro lending agencies
instead of the main financial institutions.
● Government agencies: these are
development banks that provide low-interest
loans and grants usually to entrepreneurs. An
example is the Agricultural Development Bank;
they provide low-interest loans and grants to
the farmers and fishing industry.
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ROLE AND FUNCTIONS OF FINANCIAL REGULATORY BODIES
A regulatory body is an organisation that creates
rules and makes sure that the industry it regulates
keeps to these policies and rules. Below are the
main regulatory bodies:
● The Central Bank: the central bank
oversees the printing of notes and
coins intending to ensure that there is
enough money to enable transactions.
The central bank also licenses other
banks.
● Jamaica Deposit Insurance
Corporation (JDIC): this is an
insurance scheme, where the
government guarantees the money
held in banks. Funds deposited by
businesses are more secure under
this scheme.
● Financial Services Commission
(FSC): this organisation supervises
and regulates the financial sector
to make sure the public’s money is
looked after safely.
Functions of regulatory bodies
● Regulating the issue, supply and
availability of money.
● Enforcing financial regulations from
the government.
● Registering financial institutions.
● Enforcing licences for various
financial activities such as lending
and depositing money.
● Advising the government on monetary
and fiscal policies.
● Providing statistical data to the
government and the public.
● Promoting stability, public awareness
and public confidence in the financial
institutions.
● Supervising the operations of all
financial institutions, especially
commercial banks.
BUDGETING
Budgeting is the process of creating a spending
plan called a budget. A budget enables an
individual or a business to balance their income
flowing in and outgoing income over a period of
time. A typical budget has 3 components:
● Expenditure - is the amount of money
spent on acquiring goods/services
and/or payment made on a weekly,
monthly or annual basis.
● Income - this is money received by
an individual regularly for work done.
Income received by a business from
goods sold.
● Savings - the part of one’s income
that is not spent.
● Income - expenditure - savings
DIFFERENCE BETWEEN SAVINGS AND INVESTMENT
Savings is that part of income that is not spent.
This can be kept as cash or deposited in a bank
account. People normally save for future purchase
or to provide storage of funds that will safeguard
them against future loss or other unforeseen
events.
Investment, on the other hand, is a form of inactivity
(refraining from spending). The primary purpose
of investment is usually to gain an increase in the
value of an asset.
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Forms of savings
● Sou-sou, meeting turn, partner: this
is a traditional form of savings for
Caribbean people. Each member
contributes a set amount of money to
a pool of savings each week or daily,
members receive their draw/hand at
their request.
● Deposits in financial institutions:
savers deposit their monies in a
financial institution. They may get
little or no interest but can deposit
or withdraw their monies regularly at
their convenience.
● Short-term fixed deposits: a fixed
deposit is an account where monies
are paid into an account and put
away for a particular period at an
agreed rate of interest. Only when
that time period elapses can the
money be withdrawn. If the depositor
withdraws the money before the
stated time he/she will lose the
interest rate agreed on.
Forms of Investments
● Government securities: this is a piece
of paper showing that an investor
has lent the government money, the
government will repay the loan at a
future date at a rate of interest.
● Mutual funds: this is a professional
investment company that pools
money from investors and then invest
the monies in a wide range of shares.
The mutual fund will usually specialise
in particular types of shares.
THE STOCK MARKET
● The stock market or stock exchange
is a market in which shares of a
company’s stocks are bought and
sold. The stock exchange operates
on two levels.
● As a primary market - linking with
investment banks and businesses
looking to raise capital by selling
shares. This requires the company
must be listed on the stock exchange.
● As a secondary market - it acts as a
market that put those wanting to sell
shares in touch with those seeking to
buy shares.
Role and functions of the stock exchange
● It assists industries to raise capital.
● It allows for securities to be bought
and sold.
● It protects shareholders because only
reputable companies are listed on the
stock exchange.
● Small savers benefit because the
stock market is an outlet for the large
funds of institutional investors.
● It provides market facilities for the
government.
● It improves the moral standards of
businesses.
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Stock Symbols and Stock Shares See the following YouTube videos for reference:
The stock symbol usually refers to the name of https://youtu.be/VjSAEXEOHEc
a company. Example Kw represents Kingston - Video 22 Comparing the Roles of Financial
Wharves, GKL Grace Kennedy Limited, Institutions and Their Services
● A share is a piece of ownership or
part ownership of a company. Video 22 Comparing The …
● A stock is the capital raised by
a corporation through the issue
of shares entitling holders to an
ownership interest called equity.
● Stocks are a collection of shares in
a company and are also referred to
as stock shares. A holder of stocks
receives a piece of paper indicating
the value of the stocks and declaring
how much of the company is owned.
Factors that determine the market value of
stocks https://youtu.be/JT3DE-FEsUw
Trading on the stock market is driven primarily by - Categories and Types of Financial
speculation, this may be based on company news Institutions - Introduction to Banking
and performance factors. The market value of a Part 1 of 4
stock is determined by three basic factors:
● Company earnings: a company’s Categories and Types of …
earnings are determined by factors
such as cash flow, sales/earning
analysis, development of new
products, interest rates, change in the
economic situation of a country etc.
● General stock market conditions:
stock prices goes through a cycle
where they increase/decrease based
on demand and supply. That is how
much investors are willing to pay for
a particular share of stock and how
much other investors are willing to Next lesson, will be on Stock market speculators,
sell. terms of financing and financial records.
● Speculation: this means that stocks
are bought and sold base on the belief Treisa Cornwall is on the staff of
that the price will either increase or St Andrew Technical High School.
decrease.  E-mail: treisacornwall@gmail.com