Types of financial institutions Flashcards
define financial institution
company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments and currency exchange.
They may also offer advice on both business and personal financial matters.
evaluate the bank of england as a financial institution
(BoE) is the central bank of the United Kingdom
responsible for maintaining monetary stability and financial stability in the UK economy.
regulates the supply of money, sets interest rates, and provides loans to commercial banks.
prints bank notes and stores 400 000 gold bars
doesnt lend to the public
give 2 advantages of BoE
operates independently from the UK government, allowing it to make decisions based on the best interests of the economy rather than political considerations.
maintains financial stability and economic growth by implementing policies to control inflation, stabilise the financial system, and ensures the availability of credit to support economic activity.
give 2 disadvantages of BoE
its policies may not always be effective in achieving their intended outcomes.
its policies may have unintended consequences (low-interest rates can encourage excessive borrowing, which can lead to higher levels of debt and financial instability in the long term)
evaluate banks as a financial institution
handles financial transactions and stores money on behalf of the general public.
They allow individuals and businesses to make payments, access credit and save.
give 2 advantages of banks
Secure place to store money
Pay interest on savings
Variety of services eg current and savings accounts and loans
give 2 disadvantages of banks
Savings only protected to £85,000 if
the bank goes bankrupt
Owned by shareholders therefore are
designed to make a profit
may charge for certain accounts and services
evaluate building societies as a financial institution
owned entirely by their members which means they can set rates that benefit their members and not shareholders.
provide financial services to the public such as day to day banking, mortgages and credit.
give 2 advantages of building societies
do not need to pay dividends from the profits to shareholders, customers can enjoy some of the profits being passed onto them meanings lower interest rates on mortgages and higher rates on a savings account.
Pay interest on savings
Safe place to store money
give 2 disadvantages of building societies
May lack the business drive of commercial banks as banks are profit driven so they have lower income
Savings only protected to £85,000
evaluate credit unions as a financial institution
member owned financial cooperative, controlled by its
members and operated on the principle of people helping
people, providing its members credit at competitive rates
as well as other financial services.
give 2 advantages of credit unions
Credit unions are usually local or regional, which means service may be more personal.
Owned by members so could benefit customers more
Educational resources. Credit unions tend to stress financial literacy, so it’s common for them to offer seminars, articles, calculators and other tools to help their members sharpen their money skills.
give 2 disadvantages of credit unions
more limited funds and opportunities than banks and building societies
evaluate national savings and investment as a financial institution
government backed organisation that offers a
secure savings option.
It offers a range of options
including ISA’s, premium bonds and gilts.
give 2 advantages of national savings and investment
Savings are 100% secure as it is government backed
give 2 disadvantages of national savings and investment
evaluate insurance companies as a financial institution
profit businesses that offer customers protection against a loss in exchange for a premium eg car insurance or travel insurance
give 2 advantages of insurance companies
Protect against unexpected losses/events
Pay monthly so easier to budget
give 2 disadvantages of insurance companies
Premiums assessed on risk and the higher the risk the higher the premium
Owned by shareholders therefore need
to make a profit
evaluate pension companies as a financial institution
Pension companies usually invest the money deposited by the individual in hopes of growing it for future use and save for future retirement
give 2 advantages of pension companies
You can manage your money with the aim of generating further growth or to beat the effects of inflation.
You will be able to pass any remaining funds in your pension pot on to your next generation
Structured way to plan for retirement
give 2 disadvantages of pension companies
Cannot access money until the agreed term
You will need to regularly review your investments to ensure you are still on track which can cause stress
Poor decisions can lead to disappointing returns in investment
penalties if payments are taken out early
evaluate pawnbrokers as a financial institution
individuals or businesses that loan money against the value of a person’s assets eg jewellery
If the item is not bought back then the pawnbroker will sell the asset to recoup the cost of the loan.
give 2 advantages of pawnbrokers
Quick way of acquiring short term cash
Interest not charged
give 2 disadvantages of pawnbrokers
Amount given for the asset is much lower than its worth
Asset will be sold on if loan is not repaid
evaluate payday loans as a financial institution
Short term loans that are intended to bridge the gap between one payday to another in the case of an emergency. Interest rates are extremely high and payday loans should be avoided where possible due to this.
give 2 advantages of payday loans
Quick way of acquiring cash in a short period of time
give 2 disadvantages of payday loans
Interest charged is very high which results in the amount being paid back being substantially higher leading to an individual going into debt
