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BUS149 - Foundations Of Finance > Lecture 3 > Flashcards

Lecture 3 Flashcards

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1
Q

Financial intermediation = ?

A

The process by which savings are accumulated in depository institutions and then lent or invested

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2
Q

What are the 4 financial institutions categories?

A

Depository institutions
Contractual savings institutions
Securities firms
Finance firms

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3
Q

What do depository institutions do?

A

Accept deposits/savings from individuals

Then lend pooled deposits to businesses, governments and individuals

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4
Q

What are examples of depository instituons?

A

Commercial banks

thrift institutions (savings banks, savings & loan associations, credit unions)

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5
Q

What are commercial banks?

A

Depository institutions that accept deposits, issue check-writing accounts, and make loans to businesses and individuals

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6
Q

What are thrift institutions?

A

Noncommercial bank depository institutions that accumulate individual savings and primarily make consumer and mortgage loans

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7
Q

What do savings banks do?

A

accept the savings of institutions & lend pooled savings to individuals mainly in the form of mortgage loans

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8
Q

What do savings & loan associations (S&Ls) do?

A

S&Ls accept individual savings and lend pooled savings to individuals (primarily as mortgage loans) and businesses

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9
Q

What do credit unions do?

A

Cooperative nonprofit organisations that exist primarily to provide member depositors with consumer credit

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10
Q

Consumer credit = ?

A

allows consumers to borrow money or incur debt

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11
Q

What are contractual savings organisations?

A

Organisations collect premiums and contributions from participants and provide insurance against major financial losses & retirement

Use the pooled funds to purchase debt and equity securities of business firms

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12
Q

What are examples of contractual savings organisations?

A

Insurance companies

Pension funds

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13
Q

What are insurance companies?

A

Provide financial protection to individuals and businesses for life, property, liability and health uncertainties

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14
Q

What are pension funds?

A

Receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees

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15
Q

What do securities firms do?

A

Accept and invest individual savings and also facilitate the transfer of existing securities between investors

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16
Q

What are examples of securities firms?

A

Investment companies
Investment banking firms
Mutual funds
Brokerage firms

17
Q

What are investment companies?

A

They sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities

18
Q

What are mutual funds?

A

Open-end investment companies that issue unlimited shares to investors & use pooled proceeds to purchase corporate & government securities

19
Q

What do investment banking firms do?

A

Sell or market new securities issued by businesses to individuals and institutional investors

20
Q

What do brokerage firms do?

A

Assist individuals to purchase new or existing securities or sell previously purchased sexurities

21
Q

What are finance firms?

A

They provide loans directly to consumers and businesses

22
Q

What are finance companies?

A

They provide loans directly to consumers and businesses

23
Q

What are mortgage banking firms?

A

They originate mortgage loans on homes and other real property by bringing together borrowers and institutional investors

24
Q

What are examples of finance firms?

A

Finance companies

Mortgage banking firms

25
Q

What are the 5 ways that savers and investors can invest via financial institutions?

A

Making deposits to commercial banks

Purchasing shares in mutual funds

Purchasing securities at IB firms and brokerages

Paying premiums to insurance companies

Making contributions to pension funds

26
Q

How are savers’ investments in financial institutions passed onto business firms?

A

The financial institutions either purchase debt & equity securities from the business firms or make loans and purchase debt securities

27
Q

What do commercial banks do?

A

Accept deposits, make loans and issue check writing accounts

28
Q

What do investment banks do?

A

Help businesses sell their securities to raise financial capital

29
Q

What do universal banks do?

A

Banks that engage in both commercial banking and investment banking activities

30
Q

How do indirect investment transfers via commercial banks work?

A

Savers pay commercial banks in return for CD’s

Commercial banks pay business firms in return for the firms note (a promise to repay the loan)

31
Q

How do indirect investment transfers work via an investment bank?

A

Savers pay the investment bank for the business firm’s securities

The investment bank either buys then resells the business firm’s securities to savers or just markets them to savers

BUS149 - Foundations Of Finance (19 decks)

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