Anjelika Sekreteva: Let me tell you about financial institutions.
As you know Financial Management is the process of managing the financial resources. And it is secured by financial institutions.
First come the definition of financial institution. It is an institution that provides financial services for its clients or members.
The financial institutions are regulated by the financial laws of government authority. The variety of financial institutions reveals the complex requirements of both borrowers and lenders.
These institutions operate in the short-term (money) market and the long-term (capital) market.
In the money market, the main activity centers around funds, which are lent for periods from as short as overnight up to about one year. The capital market focuses on money borrowed and lent for periods of five years or more.
Now some words about the main functions of financial institutions.
There are:
v To help businesses manage risks by providing insurance in the case of insurance companies.
v To provide corporate finance as is the case with banks, or investment trusts, which enable lots of investors to own shares in a range of companies.
v To transform assets, which are acquired through markets, into a wider and more preferable form, which becomes their liability
v The various financial institutions generally act as the intermediaries between the capital market and debt market. The financial institutions are also responsible to transfer funds from investors to the 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.
Does everybody follow me?
Ok!
Let’s move to types of Financial Institutions, then
There are:
t Banks
t Credit unions
t Stock brokerage firms
t Asset management firms
t Insurance companies
t Let me put you in the picture of it.
Alexander Golovkov: Excuse me, Anjelika. May I say a some words about the banks?
Anjelika Sekreteva: Settle! Welcome!
Alexander Golovkov:Banks manage the customers' current and savings accounts, pay out checks that have been drawn on the bank by account holders, and also perform the collection of checks deposited in their customers' accounts.
Banks perform the following commercial functions:
They process payments with the help of online banking, telegraphic transfer and other methods
They issue banknotes
Acceptance of funds on term deposits
Issuance of bank checks and bank drafts
Offering performance bonds, guarantees, letters of credit, and other types of documents
Safe custody of important documents and other valuable items in safe deposit vaults or safe deposit boxes
Providing loans through installment loans, overdrafts, and others
Selling and brokerage services related to unit trust and insurance products
Foreign exchange services
Banks are financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets.
Next comes the credit unions.
The credit union is co-operative financial institution, which is usually controlled by the members of the union. The major difference between the credit unions and banks is that the credit unions are owned by the members having accounts in it. The credit unions are generally non-profit organizations. The credit union can also be termed as profit enterprise dedicated to earn profit for its members. The profits earned by the union are received by the members in the forms of dividends. The dividends are paid on savings that are taxed as ordinary income. Depending on the financial structure of the country, the functionality of credit unions may vary in different countries.
Now some words about the stock brokerage firms.
The stock brokerage firms are the other types of financial institutions that help both the corporations and individuals to invest in the stock market. There are primarily two types of stock brokerage firms, based on their mode of operation - the online stock brokerage firms and the off line stock brokerage firms. The off line stock brokerage firms are the traditional stock brokerage firms. The online stock brokerage firms are those, who offer their services through the Internet.
Another type of financial institution is the asset management firms.
The prime functionality of these firms is to manage various securities and assets to meet the financial goals of the investors. The firms also offer fund management advice and decisions to the corporations and individuals.
Last comes Insurance Company.
Insurance Company is the company, which sells Insurance Policies. Insurance company provides financial protection or reimburses the losses of an individual or particular entity.
The Insurance Companies can be categorized into two broad types:
Life Insurance Companies: They sell annuities, life insurance, and pension products.
Non-Life Insurance Companies or General Insurance Companies: They sell other forms of insurance.
That’s all business for now. Thank you for your time.
Kristina Elizarova: What is the main reason for the difference between the two companies?
Alexander Golovkov: Let me explain it. The primary cause of this difference between the two types of companies is that the business of the Life Insurance Companies is long-term in nature. The coverage for pension or Life Insurance covers risk for a number of decades. On the other hand, Non-Life Insurance Companies generally cover a period, which is shorter, for example 1 year.
