Fm Financial Intermediaries
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FINANCIAL INTERMEDIARIES
Definition: A financial intermediary is an institution, firm or individual who performs intermediation between two or more parties in a financial context. Typically the first party is a provider of a product or service and the second party is a consumer or customer. Financial Intermediaries are financial institutions that accept money from savers and use those funds to make loans and other financial investment in their own name. These intermediaries come between ultimate borrowers and lenders by transforming direct claims into indirect claims. Financial intermediaries purchase direct securities and in turn, issue their own indirect securities to the public. Financial Intermediation: Financial intermediation is the process of savers depositing funds with financial intermediaries and letting the intermediaries do the lending to the ultimate investors. Types of Financial Intermediary: Financial intermediaries include: •
Deposit Institutions
•
Building societies
•
Credit unions
•
Financial advisers or brokers
•
Insurance companies
•
Collective investment schemes
•
Pension funds
Deposit Insitutions Among the various Financial intermediaries, some institutions invest much more heavily in the securitiesof business firms than others. Deposit institution such as commercial banks are the most important source of funds for business firms in the aggregate.
Definition of Bank: A banker or bank is a financial institution that acts as a payment agent for customers, and borrows and lends money. Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer and ATM.
Definition of Commercial Bank: Commercial banking refers to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public (retail banking). Commercial Banks in Pakistan include National Bank of Pakistan, First Women Bank Ltd., Bank Al Falah, Habib Bank Ltd. Etc. The Role of Commercial Banks Commercial banks engaged in the following activities:
2
•
processing of payments by way of telegraphic transfer, internet banking or other means
•
issuing bank drafts and bank cheques
•
accepting money on term deposit
•
lending money by way of overdraft, installment loan or otherwise
•
providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures
•
safekeeping of documents and other items in safe deposit boxes
•
currency exchange
•
sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a “financial supermarket” Other Deposit Institutions
Other deposit institutions include: •
Mutual Saving Banks
•
Saving and loan associations
•
Credit Unions
Mutual Saving Banks: A mutual savings bank is a financial institution chartered through a state or federal government to provide a safe place for individuals to save and to invest those savings in mortgages, loans, stocks, Bonds and other securities.
3
Saving and Loan Associations: A savings and loan association is a financial institution that specializes in accepting savings deposits and making mortgage loans. Some of the most important characteristics of a savings and loan association are: •
It is generally a locally owned and privately managed home financing institution.
•
It receives individuals' savings and uses these funds to make long-term amortized loans to home purchasers.
•
It makes loans for the construction, purchase, repair, or refinancing of houses.
•
It is state or federally chartered.
Credit Union: A credit union is a cooperative financial institution that is privately owned and controlled by its members. Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union and they elect their board of directors in a democratic one person-one vote system regardless of the amount of money invested in the credit union.
4
Definition: A financial intermediary is an institution, firm or individual who performs intermediation between two or more parties in a financial context. Typically the first party is a provider of a product or service and the second party is a consumer or customer. Financial Intermediaries are financial institutions that accept money from savers and use those funds to make loans and other financial investment in their own name. These intermediaries come between ultimate borrowers and lenders by transforming direct claims into indirect claims. Financial intermediaries purchase direct securities and in turn, issue their own indirect securities to the public. Financial Intermediation: Financial intermediation is the process of savers depositing funds with financial intermediaries and letting the intermediaries do the lending to the ultimate investors. Types of Financial Intermediary: Financial intermediaries include: •
Deposit Institutions
•
Building societies
•
Credit unions
•
Financial advisers or brokers
•
Insurance companies
•
Collective investment schemes
•
Pension funds
Deposit Insitutions Among the various Financial intermediaries, some institutions invest much more heavily in the securitiesof business firms than others. Deposit institution such as commercial banks are the most important source of funds for business firms in the aggregate.
Definition of Bank: A banker or bank is a financial institution that acts as a payment agent for customers, and borrows and lends money. Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer and ATM.
Definition of Commercial Bank: Commercial banking refers to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public (retail banking). Commercial Banks in Pakistan include National Bank of Pakistan, First Women Bank Ltd., Bank Al Falah, Habib Bank Ltd. Etc. The Role of Commercial Banks Commercial banks engaged in the following activities:
2
•
processing of payments by way of telegraphic transfer, internet banking or other means
•
issuing bank drafts and bank cheques
•
accepting money on term deposit
•
lending money by way of overdraft, installment loan or otherwise
•
providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures
•
safekeeping of documents and other items in safe deposit boxes
•
currency exchange
•
sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a “financial supermarket” Other Deposit Institutions
Other deposit institutions include: •
Mutual Saving Banks
•
Saving and loan associations
•
Credit Unions
Mutual Saving Banks: A mutual savings bank is a financial institution chartered through a state or federal government to provide a safe place for individuals to save and to invest those savings in mortgages, loans, stocks, Bonds and other securities.
3
Saving and Loan Associations: A savings and loan association is a financial institution that specializes in accepting savings deposits and making mortgage loans. Some of the most important characteristics of a savings and loan association are: •
It is generally a locally owned and privately managed home financing institution.
•
It receives individuals' savings and uses these funds to make long-term amortized loans to home purchasers.
•
It makes loans for the construction, purchase, repair, or refinancing of houses.
•
It is state or federally chartered.
Credit Union: A credit union is a cooperative financial institution that is privately owned and controlled by its members. Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union and they elect their board of directors in a democratic one person-one vote system regardless of the amount of money invested in the credit union.
4
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