FINANCIAL INTERMEDIARIES

GROUP 4
FINANCIAL INTERMEDIARIES

• -AN ENTITY THAT ACTS AS THE MIDDLEMAN BETWEEN TWO PARTIES IN

A FINANCIAL TRANSACTION, SUCH AS A COMMERCIAL BANK,
MUTUAL FUNDS AND PENSION FUNDS

• - MOVE FUNDS FROM PARTIES WITH EXCESS CAPITAL TO PARTIES

NEEDING FUNDS.
1. COMMERCIAL BANKS

• A TYPE OF FINANCIAL INSTITUTION THAT ACCEPTS DEPOSITS, OFFERS CHECKING

ACCOUNT SERVICES, MAKES VARIOUS LOANS, AND OFFERS BASIC FINANCIAL
PRODUCTS LIKE CERTIFICATES OF DEPOSIT (CDS) AND SAVINGS ACCOUNTS TO
INDIVIDUALS AND SMALL BUSINESSES.

• -IS WHERE MOST PEOPLE DO THEIR BANKING, AS OPPOSED TO AN INVESTMENT

BANK.
2. SAVINGS AND LOAN ASSOCIATION

• -ALSO KNOWN AS THRIFT INSTITUTIONS

• -IT IS A FINANCIAL INSTITUTION THAT SPECIALIZES IN
ACCEPTING SAVINGS, DEPOSITS, MAKING MORTGAGE AND
LOANS

SAVINGS
• -IT REFERS TO THE AMOUNT LEFT OVER
AFTER AN INDIVIDUAL’S CONSUMER
EXPENDITURE IS SUBTRACTED FROM THE
AMOUNT OF DISPOSABLE INCOME
EARNED IN A GIVEN PERIOD OF TIME.
• -SAVINGS CAN BE USED TO INCREASE
INCOME THROUGH INVESTING IN
DIFFERENT INVESTMENT VEHICLE.
LOAN
• -A LOAN IS A MONEY, PROPERTY OR
OTHER MATERIAL GOODS GIVEN TO
ANOTHER PARTY IN EXCHANGE FOR
FUTURE REPAYMENT OF THE LOAN VALUE
OR PRINCIPAL AMOUNT, ALONG WITH
INTEREST OR FINANCE CHARGES.
• -A LOAN MAY BE FOR A SPECIFIC, ONE-
TIME AMOUNT OR CAN BE AVAILABLE
AS AN OPEN-ENDED LINE OF CREDIT UP
TO A SPECIFIED LIMIT OR CEILING
AMOUNT.
• -LOANS CAN BE SECURED BY
COLLATERAL SUCH AS MORTGAGE OR
UNSECURED SUCH AS CREDIT CARD
TYPES OF LOAN
• 1. SECURED LOAN- WITH COLLATERALS OR MORTGAGE
• 2. UNSECURED LOAN- HAVE A HIGHER INTEREST RATES THAN THE SECURED
LOAN, AS THEY ARE RISKIER FOR THE LENDER

• 3. REVOLVING LOAN- IT IS A LOAN THAT CAN BE SPENT, REPAID AND SPENT

AGAIN.

• 4. TERM LOAN- A LOAN PAID OFF IN EQUAL MONTHLY INSTALLMENTS OVER A

SET PERIOD.
3. MUTUAL SAVINGS BANK

• -A FINANCIAL INSTITUTION CHARTERED BY A CENTRAL OR REGIONAL

GOVERNMENT, WITHOUT CAPITAL STOCK, THAT IS OWNED BY ITS MEMBERS
WHO SUBSCRIBE TO A COMMON FUND. FROM THIS FUND CLAIMS, LOANS,
ETC., ARE PAID. PROFITS AFTER DEDUCTIONS ARE SHARED AMONG THE
MEMBERS. THE INSTITUTION IS INTENDED TO PROVIDE A SAFE PLACE FOR
INDIVIDUAL MEMBERS TO SAVE AND TO INVEST THOSE SAVINGS IN
MORTGAGES, LOANS, STOCKS, BONDS AND OTHER SECURITIES AND TO SHARE
IN ANY PROFITS OR LOSSES THAT RESULT. THE MEMBERS OWN THE BUSINESS.
• SINCE THE 1970S, WHEN THE INDUSTRY WAS DEREGULATED, THOUSANDS
OF MUTUAL SAVINGS BANKS HAVE BEEN CONVERTED INTO STOCK
OWNERSHIP COMPANIES, RAISING MORE THAN $40 BILLION. IN 2010,
ONLY ABOUT 600 REMAINED. THESE CONVERSIONS HAVE OFTEN
RESULTED IN LARGE FINANCIAL REWARDS FOR TOP BANK EXECUTIVES.
CURRENT MUTUAL SAVING BANKS INCLUDE EASTERN BANK, DOLLAR
BANK, RIDGEWOOD SAVINGS BANK, MIDDLESEX SAVINGS BANK, AND
LIBERTY BANK.
 4. CREDIT UNIONS
• A TYPE OF FINANCIAL COOPERATIVE THAT PROVIDES TRADITIONAL BANKING SERVICES.
RANGING IN SIZE FROM SMALL, VOLUNTEER-ONLY OPERATIONS TO LARGE ENTITIES WITH
THOUSANDS OF PARTICIPANTS SPANNING THE COUNTRY, CREDIT UNIONS CAN BE
FORMED BY LARGE CORPORATIONS, ORGANIZATIONS, AND OTHER ENTITIES FOR THEIR
EMPLOYEES AND MEMBERS.

• CREDIT INSTITUTIONS ARE CREATED, OWNED, AND OPERATED BY THEIR PARTICIPANTS. AS

SUCH, THEY ARE NOT-FOR-PROFIT ENTERPRISES THAT ENJOY TAX-EXEMPT STATUS.

• CREDIT UNIONS FOLLOW A BASIC BUSINESS MODEL: MEMBERS POOL THEIR MONEY—
TECHNICALLY, THEY ARE BUYING SHARES IN THE COOPERATIVE-IN ORDER TO BE ABLE TO
PROVIDE LOANS, DEMAND DEPOSIT ACCOUNTS, AND OTHER FINANCIAL PRODUCTS AND
SERVICES TO EACH OTHER. ANY INCOME GENERATED IS USED TO FUND PROJECTS AND
SERVICES THAT WILL BENEFIT THE COMMUNITY AND INTERESTS OF ITS MEMBERS.
REQUIREMENTS FOR MEMBERSHIP

• ORIGINALLY, MEMBERSHIP IN A CREDIT UNION WAS LIMITED TO PEOPLE WHO SHARED

A "COMMON BOND" BUT IN THE RECENT PAST, CREDIT UNIONS HAVE LOOSENED THE
RESTRICTIONS ON MEMBERSHIP, ALLOWING THE GENERAL PUBLIC TO JOIN.

• TO DO ANY BUSINESS WITH A CREDIT UNION, YOU MUST JOIN IT BY OPENING AN

ACCOUNT THERE (OFTEN FOR A NOMINAL AMOUNT). AS SOON AS YOU DO, YOU
BECOME A MEMBER AND PARTIAL OWNER. THAT MEANS YOU PARTICIPATE IN THE
UNION'S AFFAIRS; YOU HAVE A VOTE IN DETERMINING THE BOARD OF DIRECTORS AND
DECISIONS SURROUNDING THE UNION. A MEMBER’S VOTING ABILITY IS NOT BASED ON
HOW MUCH MONEY IS IN THEIR ACCOUNT; EACH MEMBER GETS AN EQUAL VOTE.
ADVANTAGES OF CREDIT UNIONS
• 1. CREDIT UNIONS ARE EXEMPT FROM PAYING CORPORATE
INCOME TAX ON EARNINGS.

• 2. CREDIT UNIONS NEED TO GENERATE ONLY ENOUGH EARNINGS

TO FUND DAILY OPERATIONS. AS A RESULT, THEY ENJOY NARROWER
OPERATING MARGINS THAN BANKS, WHICH ARE EXPECTED BY
SHAREHOLDERS TO INCREASE EARNINGS EVERY QUARTER.
DISADVANTAGES OF CREDIT UNIONS
• LOWER TECH
-SMALLER CREDIT UNIONS TYPICALLY DO NOT HAVE THE SAME TECHNOLOGY BUDGET AS
BANKS, SO THEIR WEBSITE AND SECURITY FEATURES ARE OFTEN CONSIDERABLY LESS ADVANCED.

• FEWER OPTIONS
-WHILE CREDIT UNIONS THEY OFFER MOST OF THE FINANCIAL PRODUCTS AND SERVICES THAT
BANKS DO, CREDIT UNIONS OFTEN PROVIDE LESS CHOICE.

• LESS FLEXIBILITY
- WITH MORE RESOURCES TO ALLOCATE TO CUSTOMER SERVICE AND PERSONNEL, BANKS ARE
KEEPING LATER AND LONGER HOURS: OPEN UNTIL 5 OR 6 PM ON WEEKDAYS AND OFTEN ON
SATURDAYS, AS WELL. CREDIT UNIONS TEND TO MAINTAIN TRADITIONAL BANKERS' BUSINESS
HOURS (NINE A.M. TO THREE P.M., MONDAY THROUGH FRIDAY), THOUGH THE LARGER ONES,
SUCH AS SECU, HAVE A 24-HOUR CUSTOMER SERVICE HOTLINE.
5. PENSION FUNDS
• - POOLED CONTRIBUTIONS FROM PENSION PLANS SET UP BY EMPLOYERS,
UNIONS, OR OTHER ORGANIZATIONS TO PROVIDE FOR THE EMPLOYEE’S
RETIREMENT BENEFITS.

• - ITS OBJECTIVE IS TO PROVIDE PENSIONERS WHO HAVE REACHED THE

RETIREMENT AGE WITH INCOME IN THE FORM OF A PENSION.

• - FUNDS ARE PAID BY EITHER EMPLOYEES, EMPLOYERS OR BOTH.

• - ONE OF THE MOST ACCESSIBLE PENSION PLANS IN THE PHILIPPINES IS
FACILITATED BY SSS. THIS IS CONSIDERED AS ONE OF THE EASIEST WAYS TO
INVEST SINCE SSS CONTRIBUTIONS ARE MANDATED BY LAW AND ARE
AUTOMATICALLY DEDUCTED FROM YOUR SALARY.
A. DEFINED BENEFIT PENSION PLAN
• - DEFINES THE BENEFITS THAT WILL BE PAID TO THE FUTURE PENSIONER
AS SOON AS THE CONTRACT IS SIGNED. THESE BENEFITS ARE
THEREFORE GUARANTEED REGARDLESS OF INVESTMENT RETURNS.
• -IT IS OBLIGATED TO PAY A FIXED AMOUNT TO THE BENEFICIARY
REGARDLESS OF HOW WELL THE FUND DOES.

B. DEFINED CONTRIBUTION PLAN

• -THE EMPLOYEES DO NOT KNOW THE AMOUNT OF BENEFITS THEY
WILL RECEIVE ON RETIREMENT. BENEFITS DEPEND ON THE
INVESTMENT RETURNS OF THE COMPANY.
6. LIFE INSURANCE COMPANIES

• -A CONTRACT BETWEEN AN INSURER AND A POLICYHOLDER IN WHICH

THE INSURER GUARANTEES PAYMENT OF A DEATH BENEFIT TO NAMED
BENEFICIARIES UPON THE DEATH OF THE INSURED. THE INSURANCE
COMPANY PROMISES A DEATH BENEFIT IN CONSIDERATION OF THE
PAYMENT OF PREMIUM BY THE INSURED.
• -THE PURPOSE OF LIFE INSURANCE IS TO PROVIDE FINANCIAL
PROTECTION TO SURVIVING DEPENDENTS AFTER THE DEATH OF AN
INSURED.
TERM LIFE INSURANCE

• TERM LIFE INSURANCE IS DESIGNED TO PROVIDE FINANCIAL

PROTECTION FOR A SPECIFIC PERIOD OF TIME, SUCH AS 10 OR 20
YEARS. WITH TRADITIONAL TERM INSURANCE, THE PREMIUM
PAYMENT AMOUNT STAYS THE SAME FOR THE COVERAGE PERIOD
YOU SELECT. AFTER THAT PERIOD, POLICIES MAY OFFER CONTINUED
COVERAGE, USUALLY AT A SUBSTANTIALLY HIGHER PREMIUM
PAYMENT RATE. TERM LIFE INSURANCE IS GENERALLY LESS EXPENSIVE
THAN PERMANENT LIFE INSURANCE.
UNIVERSAL LIFE INSURANCE

• UNIVERSAL LIFE INSURANCE IS A TYPE OF PERMANENT LIFE

INSURANCE DESIGNED TO PROVIDE LIFETIME COVERAGE. UNLIKE
WHOLE LIFE INSURANCE, UNIVERSAL LIFE INSURANCE POLICIES ARE
FLEXIBLE AND MAY ALLOW YOU TO RAISE OR LOWER YOUR
PREMIUM PAYMENT OR COVERAGE AMOUNTS THROUGHOUT YOUR
LIFETIME. ADDITIONALLY, DUE TO ITS LIFETIME COVERAGE,
UNIVERSAL LIFE TYPICALLY HAS HIGHER PREMIUM PAYMENTS THAN
TERM.
WHOLE LIFE INSURANCE

• WHOLE LIFE INSURANCE IS A TYPE OF PERMANENT LIFE

INSURANCE DESIGNED TO PROVIDE LIFETIME COVERAGE.
BECAUSE OF THE LIFETIME COVERAGE PERIOD, WHOLE LIFE
USUALLY HAS HIGHER PREMIUM PAYMENTS THAN TERM LIFE.
POLICY PREMIUM PAYMENTS ARE TYPICALLY FIXED, AND,
UNLIKE TERM, WHOLE LIFE HAS A CASH VALUE, WHICH
FUNCTIONS AS A SAVINGS COMPONENT AND MAY
ACCUMULATE TAX-DEFERRED OVER TIME.
 Term Life Universal Life Insurance Whole Life
Insurance Insurance
Needs it helps meet Income Wealth transfer, income Wealth transfer,
replacement during protection and some preservation and, tax-
working years designs focus on tax- deferred wealth
deferred wealth accumulation
accumulation
Protection period Designed for a specific Flexible; generally, for a For a lifetime
period (usually a number lifetime
of years)
Cost differences Typically less expensive Generally more Generally more
than permanent expensive than term expensive than term
Premiums Typically fixed Flexible Typically fixed
Proceeds paid to Yes, generally income Yes, generally income Yes, generally income
beneficiaries tax-free tax-free tax-free
Investment options No No2 No
May help build equity No Yes Yes
Available through Yes, Fidelity Term Life Yes, Universal Life No, traditional Whole Life
Fidelity Insurance3 Insurance, primarily Insurance is not currently
focused on death offered
benefit protection
7. MUTUAL FUNDS
• -A TYPE OF FINANCIAL VEHICLE MADE UP OF A POOL OF MONEY COLLECTED FROM MANY
INVESTORS TO INVEST IN SECURITIES SUCH AS STOCKS, BONDS, MONEY MARKET INSTRUMENTS, AND
OTHER ASSETS.
• -OPERATED BY PROFESSIONAL MONEY MANAGERS, WHO ALLOCATE THE FUND'S ASSETS AND
ATTEMPT TO PRODUCE CAPITAL GAINS OR INCOME FOR THE FUND'S INVESTORS
• -GIVE SMALL OR INDIVIDUAL INVESTORS ACCESS TO DIVERSIFIED, PROFESSIONALLY MANAGED
PORTFOLIOS AT A LOW PRICE
• -DIVIDED INTO SEVERAL KINDS OF CATEGORIES, REPRESENTING THE KINDS OF SECURITIES THEY
INVEST IN, THEIR INVESTMENT OBJECTIVES, AND THE TYPE OF RETURNS THEY SEEK.
• -CHARGE ANNUAL FEES (CALLED EXPENSE RATIOS) AND, IN SOME CASES, COMMISSIONS, WHICH
CAN AFFECT THEIR OVERALL RETURNS.
• -THE OVERWHELMING MAJORITY OF MONEY IN EMPLOYER-SPONSORED RETIREMENT PLANS GOES
INTO MUTUAL FUNDS.
• MONEY MARKET FUNDS INVEST PURELY IN SHORT-TERM (ONE YEAR
OR LESS) DEBT INSTRUMENTS.

• BOND FUNDS INVEST IN LONG-TERM DEBT INSTRUMENTS OF

GOVERNMENTS OR CORPORATIONS.

• BALANCED FUNDS INVEST BOTH IN SHARES OF STOCK AND DEBT

INSTRUMENTS.

• STOCK FUNDS / EQUITY FUNDS INVEST PRIMARILY IN SHARES OF

STOCK.