The Main Financial Institutions

Question 1

List the main financial institutions

Answer 1

1. Central banks
2. Deposit institutions
   E.g commercial banks, deposit and lending facilities, investment banks, saving institutions
3. Investment institutions
   E.g insurance companies, pension funds

Question 2

What is the role and impact of the central bank?

Answer 2

1. Financial institution that sets the monetary framework within which financial organisations operate
2. E.g the central bank sets short term interest rates to meet an inflation target
3. Acts as lender of last resort to the banking sector supplying liquidity during times of crisis

Question 3

Explain the role and impact of deposit institutions

Answer 3

1. Accept deposits from economic agents
2. They lend funds as direct loans or investments
3. They include commercial banks and building societies

Question 4

Explain the role and impact of investment institutions

Answer 4

1. Invest the funds they raise in tradable securities such as bonds and equities - anything that growth wealth
2. They include insurance companies that offer protection against unwanted events e.g death/ illness and retirement.
3. Also includes for things like loss/ damage to homes, vehicles..
4. Also includes pension funds