FINANCIAL INSTITUTION, INSTRUMENT AND

MARKET
NOVEMBER 13, 2017
OBJECTIVES

1. To distinguish a financial institution from a financial instrument and

financial market
2. Enumerate the varied financial institutions and their corresponding
services
FINANCIAL INSTITUTIONS
FINANCIAL INSTITUTION

WHAT: • An intermediary between

consumers and capital
markets

commercial banks, investment

banks, brokerage firms, insurance
WHO: companies, and asset management
funds
WHY: Supply money to the market

transfer of funds from

investors to the companies
HOW: in the form of loans,
deposits, and investments
EXAMPLES:
FINANCIAL INSTRUMENTS
 A document that has a monetary value
WHAT:
or represents a legally enforceable
(binding) agreement between two or
more parties regarding a right to
payment of money.

"any contract that gives rise to a financial asset of one

entity and a financial liability or equity instrument of
another entity."
EXAMPLES:
FINANCIAL MARKET
WHAT: • a marketplace, where creation and trading of
financial assets, such as shares, debentures,
bonds, derivatives, currencies, etc. take place.

WHO:
Buyers and Sellers of financial instruments
WHY: • important to the general health of an
economy to facilitate capital formation and
liquidity for entrepreneurs and businesses

HOW: • Face-to-face transactions at the market place

• Through internet
EXAMPLES:
Money Markets
• For very short-term Mortgage Markets
debts • making long-term loans for the
• Bank loans, overdrafts, purpose of buying property.
treasury bills
FINANCIAL
MARKETS
Capital Markets
• long-term debt, private Insurance Markets
sector stocks • insurance companies are
and shares, and private important players in other
financial markets
and public
sector bonds.
CLASSIFICATIONS OF FINANCIAL INSTITUTIONS
 CLASSIFICATIONS OF FINANCIAL INSTITUTIONS

DEPOSITORY NON DEPOSITORY

 Basically, BANKS  Non-depository institutions are

 a financial institution that
accepts deposits and channels
the money into lending
activities
Activity
not banks in real sense.
 They make contractual
arrangement and investment in
securities to satisfy the needs
and preferences of investors.
 COMMERCIAL BANKS
 They basically accepts the deposits
from individuals and institutions,
which are repayable on demand.
 These deposits from individuals and
institutions are invested to satisfy
the short-term financing
requirement of business and
industry.
CREDIT UNIONS
 cooperative associations where large
numbers of people are voluntarily
associated for savings and borrowing
purposes.
 These individuals are the members of
credit unions as they make share
investment along with deposits.
 The saving generated from these
members are used to lend the members
of the union only.
 Saving And Loan Associations
 involved in collecting funds of
many small savers and lending
these funds to home buyers
and other types of borrowers.
back
Mutual Saving Banks
 similar to saving and loan
associations.
 They primarily accepts savings
of individuals and they are lent
to the home users and
consumers on a long-term
basis.
 Insurance Companies
 contractual saving institutions
which collect periodic premium
from insured party and in
return agree to compensate
against the risk of loss of life
and properties.
Pension/Provident Funds
 financial institutions which accept
saving to provide pension and other
kinds of retirement benefits to the
employees of government units and
other corporations.
 The pension funds basically invest in
stocks, bonds and other type of
long-term securities including real
estate.
 Finance Companies
 leasing, project financing,
housing and other kind of real
estate financing.
back
Mutual Funds
 open-end investment companies.
 Mutual funds are basically a large
public portfolio that accepts funds
from members and then use these
funds to buy common stocks,
preferred stocks, bonds and other
short-term debt instruments issued
by government and corporation for
the mutual benefit of its members.
ACTIVITY

 CREATE A VENN DIAGRAM AS A SUMMARY OF OUR DISCUSSION TODAY