IFM- The influence of financial institutions

Question 1

what is a financial institution

Answer 1

Collect funds and invests them in financial assets.

Provide financial services and focus on dealing with financial transactions such as investments, loans and deposits.

Question 2

Banks

Answer 2

The major operators in financial markets and are the most important source of funds for businesses

receive savings as deposits from individuals, businesses and, in turn, make investments in and provide loans to borrowers

perform a wide range of roles and have subsidiaries in superannuation, financial planning and insurance.

Question 3

investment banks

Answer 3

Provide a wide variety of different types of loans for businesses

Investment banks sometimes impose conditions, such as requiring some equity in the business, when providing loans.

offer a range of services and advice at all stages of a business’s life to solve financial management problems.

Question 4

finance companies

Answer 4

Non-bank financial intermediaries that specialise in smaller commercial finance

They provide mainly short term and medium term loans to businesses and are also the major providers of lease finance to businesses

Question 5

life insurance companies

Answer 5

Provide cover and a lump sum payment in the event of death and permanent disability

Policy holders pay regular premiums and the insurer guarantees to pay a sum of money upon the death of the insured person

Using these collected premiums, life insurance companies provide equity and lend to the corporate sector

Question 6

superannuation funds

Answer 6

Employers are required by the government to make superannuation contributions of 9.5%(10% in July 20201) of the wage/salary for all employees aged between 18 and 69.

They provide finance to the corporate sectors through investment of funds received from these contributions

Superannuation funds are able to invest in shares, property and infrastructure projects because of the long-term nature of their funds

Question 7

unit trusts (mutal funds)

Answer 7

Groups of individual investors who pool their money together (by purchasing so called units) into a fund administrated by an investment manager

Whilst an individual may be excluded from certain investments and the risk would be higher, unit trusts gain safety and power in numbers.

The returns on investments are divided according to the size (or number of units) of the original investment of the individuals