Lecture 3 Flashcards
Financial intermediation
where savings are accumulated in depository institutions then lent or invested
What does a depository institution do
accept deposits from individuals then lend pooled deposits to businesses, governments and individuals
2 institutions in a depository institution
- commercial bank
- thrift institution
Commercial bank
accept deposits, issue check writing accounts and make loans
Thrift institution
non commercial bak depository institution that accumulate savings and primarily make consumer and mortgage loans
3 types of thrift institution
- savings bank
- savings and loan associations
- credit unions
Savings bank
accept savings of individuals and lend pooled savings mainly in the form of mortgage loans
Savings and loan associations
accept individual savings and lends to individuals and businesses mainly in the form of mortgage loans
Credit unions
coop notforprofit organisations that exist to provide members with consumer credit
2 types of contractual savings organisations
- insurance companies
- pension funds
What do contractual savings organisations do
collect premiums and contributions to protect against risk and provide for retirement
Insurance companies
provide financial protection against uncertainties by collecting premiums
Pension funds
receive contributions from employees / employers and invest proceeds
What do securities firms do
accept and invest individual savings and facilitate the transfer of existing securities
4 types of securities firms
- investment companies
- mutual funds
- investment banking firms
- brokerage firms
Investment companies
sell shares in their firms to individuals, invest process in corporate / government securities
Mutual funds
OEIC, issue unlimited number of shared and use pooled proceeds to purchase corporate / government securities
Investment banking firms
sell or market new securities issued by businesses to individuals
Brokerage firms
assist individuals in purchasing new or existing securities or to sell previously purchased securities
What do finance firms do
provide loans directly to consumers and businesses or aid in obtaining finance
2 types of finance firms
- finance companies
- mortgage banking firms
Finance companies
provide loans directly to consumers / businesses or aid in obtaining finance of durable goods / homes
Mortgage banking firms
originate mortgage loans on homes and property by bringing together borrowers and investors
Universal bank
engages in both commercial and investment banking activities
