“the Role Of Financial Institutions In The Student Loan Market” – Describe the nature of financial institutions A financial institution is an organization that collects funds from individuals, businesses and other institutions.

Presentation on theme: “Describe the nature of financial institutions. A financial institution is an organization that collects funds from individuals, businesses, and other institutions.”— Presentation transcript:

“the Role Of Financial Institutions In The Student Loan Market”

1 Describe the nature of financial institutions A financial institution is an organization that collects funds from individuals, businesses and other institutions to lend or invest in others that need funds

Role Of Financial Institutions In Capital Formation

2 The role of financial institutions in the economic system. By transferring money from those who have it to those who need it, financial institutions act as financial intermediaries (intermediaries) in the economy. Financial institutions facilitate the flow/movement of money through the economy.

3 Different types of financial institutions and their specific functions. Institutions for receiving deposits Accepting deposits (funds) from depositors Use deposits to offer loans to borrowers Use deposits to make payments on behalf of depositors to individuals, companies and creditors to whom depositors owe money Types of institutions for receiving deposits: Commercial banks Credit unions Savings and loan societies Savings societies Mortgage companies society

4 Financial and insurance institutions Financial companies are credit companies. Raise capital by issuing notes, bonds, and other obligations Make loans, usually to businesses. Insurance companies offer insurance protection in exchange for policy premiums. Manage, pool the risks of individuals. Use funds from premiums to offer loans. Invest funds to raise more capital. Create investment products

5 Investment institutions Investment companies (mutual funds) Pool funds and invest them based on the needs of investors Investment banks Locate external sources of money for companies Help companies raise funds by issuing securities Pension funds Pool contributions and invest them for employees Stock exchanges Help manage risk Create an investment

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6 Government/semi-government financial institutions Perform regulatory and supervisory functions Increase funds available to investors Manage and assume risk Have different relationships with government: Government institutions are controlled by the government, while semi-government institutions are independent organizations supported by the government. Examples: Small Business Administration (SBA) Federal National Mortgage Association (Fannie Mae) Federal Housing Administration (FHA)

7 International Financial Institutions Created and owned by multiple national governments Example: World Bank Group Provides financing and advice to countries to stimulate economic development and eliminate poverty

8 Discuss the ways in which financial institutions reduce the risk faced by individual savers/investors. As intermediaries, financial institutions distribute the funds of depositors/investors among many borrowers. Therefore, if the loan or investment goes through, its impact on individual savers/investors is minimized. Financial institutions better determine the creditworthiness of borrowers and the profitability of investments.

9 Discuss the economic disadvantages of financial institutions. If the flow of money into a financial institution slows down, then there is less money available for the financial institution to lend or invest. Financial institutions are often interconnected by investing in deposits and lending to each other. If one financial institution fails, it can trigger a domino effect, causing a series of financial institution failures. The collapse of several financial institutions can result in a serious disruption of the economy.

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10 Explain how credit ratings of financial institutions are used. Credit rating of a financial institution: Indicates the creditworthiness of the institution. It tells savers and investors how safe or risky it is to give funds to the institution.

11 KEY TERMS Deposit-taking – used to describe a bank or other financial organization where people can put their money: Intermediary – A financial intermediary is a financial institution such as a bank, savings bank, insurance company, investment bank or pension fund. A financial intermediary offers a service to help an individual/business save or borrow money. Credit score – An assessment of the borrower’s creditworthiness in general or with respect to a specific debt or financial obligation. A credit rating can be assigned to any entity that wants to borrow money – an individual, a corporation, a state or provincial government, or a sovereign government. Valuation – the act or process of making a judgment about the price or value of something

12 Researching Financial Institutions 1. Select a financial institution 2. Research and describe the services offered 3. Explain who uses or benefits from the financial institution you have chosen 4. Explain the impact of financial institutions on the economy.

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What Is A Financial Institution?

In order for this website to function, we record user data and share it with processors. To use this website, you must agree to our Privacy Policy, including our Cookie Policy. Well…saving is a key step in raising money for your future wants. In addition to depositing money in banks, many new ways of managing money have appeared in the last few decades and many people are using these options.

The economy is based on coordination between different sectors; one of which is the financial services sector. Financial services are those that deal with money as a commodity. The types of companies that make up this sector are banks, insurance companies, non-banking financial companies, investment companies, loan and credit companies, brokers, etc.

Banks: (commercial banks) Institutions for opening accounts, receiving public deposits, providing credit in the form of loans are the main functions of a bank. Banks are the most stable companies that provide financial services in the enterprise. The key functions of the bank are listed as follows:

Investment Banking: Investment banks are special types of banks that work to trade stocks and bonds for companies. Important functions of these banks are:

Role Of Financial Services In Economic Development

Insurance Companies: These companies are a form of risk management companies that specialize in guaranteeing financial security in the event of property damage or loss.

Mutual Funds: Nowadays, apart from banks, many independent companies have emerged to manage and hold mutual funds for individuals. Mutual funds are part of a very dynamic money market.

Audit and Taxation Services: These companies offer paid auditing, management and consulting services for tax and related matters to individuals and businesses.

To explain the role of financial services in the development of the economy, we must understand that this sector leads, manages and controls the flow of money in the economy. Developed countries have always shown a strong financial services sector.

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Financial services help in the development of businesses by providing them with the necessary financial assistance, underwriting losses, etc. Loans issued by businesses are used to purchase fixed assets and/or invest in other sources of fundraising.

The growth of working and fixed capital drives the financial services system in the economy by promoting the issuance of debentures, shares, short-term loans, etc.

Financial services are also available for entrepreneurs seeking funding and investors for their business. Banks do not easily give loans to new entrepreneurs, but other market players specialize in this area. Angel investors, venture capital, loan services, consulting services etc. play a crucial role in the growth of entrepreneurship in India.

The vast and expanding financial services sector and market puts the choice of investing money in the hands of investors. Better services, more customers for the service and the company. This ensures competition among companies that benefits investors — the public and companies in the country.

Finding Suitable Roles In Banking And Financial Services

The availability of choices for investors and the public ensures trade without barriers, intermediation of reliable banks and companies. It also helps in the development of domestic and foreign trade in goods and services.

The financial services sector is not one company or bank. Rather, it is a network of companies that work together for various money matters. Imagine that a person has excess money. He saves some in the bank and invests the rest in the stock market. He gets high returns on stocks and makes money. Now he decides to buy a car and take out insurance.

In this situation, we saw how a person is connected to different segments of the market. The companies he did business with must be affiliated with other service providers like those discussed above. The role of financial services in economic development.

The lesson of this story was that a vast interconnected network of financial services ensures a continuous flow of capital or what we call liquidity in the market.

Role Of Financial Institutions In The Development Of Enterpneurship

Credits and loans are also the wheels of this financial system. Borrowing and borrowing capital and paying it back with interest is an old method of trading capital.

But due to problems in lower incomes, high demand for money in the market, there is a big imbalance between loans and their repayment. In India, many companies and individuals are unable to pay back loans and credit arrears. This causes the economy to decline and indebtedness and debt to accumulate. This sector should be regulated with more attention to the type of customer.

Another way the financial services sector plays an important role is in job creation. This sector needs different types of workforce based on their skills—management, accounting, law, IT, etc.

This sector really needs professional staff. A study of India’s 250 largest companies found that nearly 28% of the total jobs are in the financial services sector. This is important for both the workers and the community

The Importance Of The Financial Services Sector

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