FINANCIAL

INSTITUTIONS,
FUNCTIONS AND
IMPORTANCE
Financial Institutions

Deals with financial and

monetary transactions
such as deposits, loan,
investments and
currency exchange.
Financial Institutions

Watch this video for more information.

https://www.youtube.com/watch?v=yv73io7b5VA
Major Types of Financial
Institutions
Retail and Commercial Banks
-Commercial banks and retail banks refer entirely to
depository institutions (meaning that they accept
deposits from clients and make loans).
-They simply serve different clients, although most
of the time "retail" and "commercial" banking
simply refers to two sides of the same business.
 Retail Bank
- It caters individual customers.
- Retail banking is what most
people think of when they
consider personal banking. It
offers deposit, access and
lending services to individuals
among other financial
services.
Commercial Bank
- Banks engaged in
commerce.
- Offers banking services to
businesses, governments
and other institutions. It may
also be called corporate
banking.
Internet Banks
- works similarly to retail bank, it
offers the same product and services
of conventional
- an electronic payment system that
enables customers of a bank or other
financial institution to conduct a
range of financial transactions
through the financial institution's
website.
Credit Unions
- Serve a specific demographic per their field of membership. E.g.
teachers, soldiers.
- Credit unions are owned by members and they operate for their
benefit.
- A credit union is 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.
Savings and Loan Association
- Mutually held and provide no more than 20% of total lending to
business.
- 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. Depositors and borrowers are
members with voting rights and have the ability to direct the
financial and managerial goals of the organization.
Investment Banks and Companies
Investment Banks and Companies
- Do not take deposit instead they take
investment.
- Mutual funds; use to help business,
government, individual raise capital.
- Provide access to the broader securities
market.
Brokerage Firms
- Assists individual and institution in buying and selling
securities.
- Customers can place trade.
- Watch this video for more information.
https://study.com/academy/lesson/what-is-a-brokerage-fir
m-definition-types.html
Insurance Companies
Insurance Companies
- A company, which may be for-profit, non-profit or government-
owned, that sells the promise to pay for certain expenses in
exchange for a regular fee, called a premium. For example, if one
purchases health insurance, the insurance company will pay for
(some of) the client's medical bills, if any. Likewise, in life insurance,
the company will give the client's beneficiary a certain amount of
money when the client dies.
- The insurance company covers its expenses and/or makes a profit
by spreading the risk of any one client over the pool of premiums
from many clients.
Mortgage Companies
- Originate o fund mortgage loans.
- Most of them serve individual consumer
market, some specialize in lending options
for commercial real estate only.
Functions and Roles of
Financial Institutions
Functions
1. Provide loans and advances to the customers.
2. Rate of return is very high in case o investment made.
3. Gives a high rated consultancy to the customers for their
beneficial investments.
4. Serve as depository for their customers.
5. Make an effort to minimize the monitoring cost of the company.
6. All the finance related work is done by the financial institution or
on behalf of the customers.
Roles
1. provide varied kinds of financial services to the
customers.
2. Provides an attractive rate of return to the customers.
3. Promotes are direct investment by the customers and
making them understand the risk associated with that as
well.
4. It helps in forming the liquidity of the stock in case of an
emergency in financial markets.
 Advantages and
Disadvantages of Financial
Institutions
Advantages
1. Help in the upliftment of the economies of our country.
2. Proved to be more successful in terms of return earned by the customers
since he rate of return is higher compared to any other place.
3. A smart way to invest money and keep the money notated in the finance
market.
4. It provides financial services to the customers.
5. The repayment facility is also very well managed in the financial institutions.
6. It also provide underwriting facilities.
Disadvantages
1. Process is very complex for some customers because they try to
indulge in various business and end up making confusion for
themselves.
2. In case of default done by the management of the financial
institutions, the customers will have to face major worse
circumstances. The money which they have invested may not be
recovered. Sometimes the principal amount is not assured to be
recovered because the government in case of default announces a
certain sum of money which will be repaid and most of the time
the amount of government declare to be repaid is very less in
comparison to the principal amount of the investment made.