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FINANCIAL INSTITUTION

FINANCIAL INSTITUTION. 4 th Q: Unit 3. What is Financial Institution?. a financial institution is an institution that provides financial services for its clients or members Example: Commercial Banks

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FINANCIAL INSTITUTION

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  1. FINANCIAL INSTITUTION 4th Q: Unit 3

  2. What is Financial Institution? • a financial institution is an institution that provides financial services for its clients or members • Example: • Commercial Banks • Most important financial service provided by financial institutions is acting as financial intermediaries. • Most financial institutions are regulated by the government

  3. 3 Major Types of Financial Institutions • Depository Institutions • Contractual Institutions • Investment Institutions • Each financial institution has certain important roles and functions for saving and investment that influences the economic system of the country.

  4. 1. Depository Institutions - deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, trust companies, and mortgage loan companies

  5. Commercial Bank Depositors Services • Current Deposits - refers to a deposit to a bank account or financial institution without a specified maturity date. • Savings Deposits- A deposit account held with a financial institution that pays interest but does not allow for direct withdrawal through checks. • FixedDeposits - is an interest-bearing bank deposit that has a specified date of maturity. CURRENT VS. SAVINGS ACCOUNT: • Savings Account – earn interest while you save your money. (mostly overdraft not allowed). • Current Account – allows you to use check for payments. (overdraft allowed). • Fixed Deposit Account – earn higher interest while you save your money for a fixed period of time.

  6. Commercial Bank Borrowers Services • Loan – you are borrowing something with a fix amount of money, with a fix time of payment, with a certain interest rate. • Mortgage – a specific type of loan for buying property. This is secured. Means, if you don’t keep up with your repayments you could lose your home/land. • Overdraft – is a facility that could let you spend money more than the amount available in your bank account. The interest will be charge only the overdraft account. • Credit Card – a small plastic card issued by a bank, business, etc., allowing the holder to purchase goods or services on credit with a certain amount limit and usually paid by the holder monthly.

  7. 2. Contractual Institutions - Insurance companies and pension funds.

  8. Investment Institutions - Investment banks, brokerage firms…

  9. The Role of Financial Institution in Economy • Financial institutions provide service as intermediaries of financial markets. They are responsible for transferring funds from investors to companies in need of those funds. Financial institutions facilitate the flow of money through the economy. • CENTRAL BANK – act to supervise the nation’s financial system. It controls how much money can safely move out.

  10. Non-bank Financial Institutions • Cooperatives – deposits from the members utilize for loans • Pawns – made loans for general public by pledging goods, and wares of both new and used. • Credit Insurance Industry – provide a long-term capital lenders in the business industry.

  11. VOCABULARIES 1.COMMERCIAL BANK - a bank that offers services to the general public and to companies. 2.ASSET - is something that is worth money and that someone could sell for money 3.LIABILITY - is something that you owe. This could be something like a bill. 4.LOAN - a thing that is borrowed, esp. a sum of money that is expected to be paid back with interest. 5.DEBIT - is them taking the money, in your case electronically. 6.CREDIT - - is somebody confirming for you and saying you will pay later. 7.ACCOUNT - a record or statement of financial expenditure or receipts relating to a particular period or purpose. 8.EXPENDITURE - the action of spending funds. 9.FUNDS - a sum of money saved or made available for a particular purpose. 10.SUM - a particular amount of money. 11.INVEST - use money with the expectation of achieving a profit or material result. 12.PROFIT - a financial gain or producing something beneficial 13.WITHDRAWAL - the action of withdrawing something. 14.INTEREST - money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt. 15. MORTGAGE - is a type of loan that is secured with real estate or personal property. 16. INVESTMENT - An asset or item that is purchased with the hope that it will generate income or appreciate in the future 17. ATM – Automatic Teller Machine or (Automated Teller Machine)

  12. Famous caught: “Banks make money out of money.” “Wealth comes from the land.” “It is possible to invest without risk.”

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