A financial institution is something that has been
established that contains financial trades for example investments, getting a
loan or putting a deposit (ABP, 2001). Financial institutions get dealt with on
day to day so almost everyone deals with it. Majority of the depositing,
borrowing money, exchanging money contains and must be done through financial
The functions in financial
One of the functions of the financial institutions is
Commercial Banks. Commercial banks will accept deposits and provide very good
security and make it suitable for their customers. This is just a normal role
for the bank to give their customers money safe so that their customers don’t
have to physically keep their belonging in their home or on them (APB, 2001).
With having commercial banks there is no need to keep large amount of money in
hand because the banks can handle it such as online banking, checks, debit card
or credit card.
Another one is insurance companies, insurance companies
protect themselves or their properties such as your phone, your vehicle or your
house anything that you feel should be insured. Insurance use statistical
analysis to protect what has been covered by the company, insurance company
will cover your belongings that you want to insure. Insurance helps people or
company manage the risks and reserve prosperity.
Another function for the
financial system is Investment Banks, investments banks may be called “banks”,
and their process is different than deposit gathering banks commercial banks.
An investment bank more like a financial intermediary that does variety of
services for business and sometimes government. The services that investment
banks include underwriting debts and equity offering. Acting like an in-between
in problems, making markets, investing public and other reorganisations,
basically acting like a broker for institutional clients.
As well as the large
universal banks, other types of institution found within the part or area
include elite investment banks, advisory-only investment banks, and banks which
focus on mid-market deals or on geographies.
The deposit-type institution
for example some commercial banks, commercial banks make loans to borrowers
this will make commercial banks a deposit type. There are other types of
company that goes into the sections of deposit-type institution such as Savings
and Loan Associations, this type will give out mortgage loans, so saving and
loan associations make loans if a person wants to purchase private housing or
if you need money for home improvement, for example if you want to retouch your
A non-depository institutions
is, for example a life insurance, insurance companies will deliver the
essential insurance facilities to the public and different business entities. (crackmba,2012)
there are different types of circumstances and procedures for insurance
companies which is most certainly different to banks rules and guidelines.
Another one could be pension funds, pension funds they seek to make money from
the people and the money that they have their intentions is to invest that
money in risk free tools a good one will be like the government bond.
Outline the main responsibilities of the Federal Open Market Committee. Explain
the key functions of the Bank of England. Discuss how expansionary activities
conducted by the Federal Reserve impact the money supply, credit availability,
interest rates and security prices. Discuss what happens when the Bank of
England conducts a restrictive open market operation. What policy measures were
taken by the Federal Reserve and the Bank of England to address the financial
crisis in 2008-09?
The federal open market committee is indicted with supervising “open
market operations, the main tool which the Federal Reserve executes the US
monetary policy. These processes that affect the federal funds rate, which in
turn affects overall monetary and credit circumstances, aggregate demand, the
whole economy. The federal open market committee guides tasks undertaken by the
Federal Reserve in imported exchange markets, in recent years, has allowed
currency switch plans with foreign central banks. (Federal Reserve, 2016)
The main roles of the FOMC is that the fomc expresses the
states monetary policy, the members of the fomc that vote only contain seven
associates of the board of governors. The main president of the federal reserve
bank and presidents of the other four banks who function a one year rotating
basis. The fomc have meeting 8 times in a year in Washington D.C, at these
individuals meeting they debate the outlook of the economy and monetary policy
decision. (federalreserveeducation.org, 2017)
The Bank of England has
individual obligation regarding choosing the level of base loan fees. The Bank
delivers its own particular measurements and embraces money related
investigation to enable it to make monetary soundness. One of the main role for
bank of England is quite obvious, making the money, printing the banknotes and
the bank of England have to make sure the notes get to where it needs to be at.
(The Bank of England, 2017). Bank of England has to make sure that the people
that use the notes feel safe using it and make the notes feel and look real.
The bank of England lend
money to commercial banks, for the bank of England to lent money to the banks,
the commercial banks sometimes the commercial has short amount of cash, then the
commercial banks can ask the bank of England to lend them money. (Tejvan
Pettinger, 2012) this function for bank of England is very “important to help
liquidity and confidence in the banking system”.
The clear market operations
conducted by the Federal Reservation affect the money provision of an economy
through the buying and selling of government security. When the Federal Reserve
wants to increase the money provision through open market operations, it buys
government security measures; when it wants to decrease the money supply
through open market operations, it sells government securities.
the Federal Reserve uses open
market operations to either brake or speed up the process of people making,
selling, and buying things through a strict regulation of the money supply so
that the money supply forces the federal money rate to increase or decrease
toward a target rate. (tejvan pettinger, 2012)
The main object of funds for commercial banks is savings. Deposits are
put together in local markets and have lower interest rate. They will be
relatively stable. deposits can be known as demand deposit (current deposit) etc. (Bhim Chimoriya, 2017) in a case where a demand deposit is placed, the
source of funds are the checking account that does not pay any interest and
permit check writing.
Another important source of funds for
commercial bank’s liabilities management, the banks have to manage liabilities
very carefully make something as small as possible and minimise risks and
achieve the goals that is needed to be gained. The items that are in
liabilities of commercial banks are equity, reserves, borrowing, deposits, new
account, money market liabilities, deposit account etc. (Bhim Chimoriya, 2017)
The reason why banks issue bonds is that
there will be an interest on top of the bond that’s going to be given out.
Banks finds this a smart movement and pursue to profit by adding on interest
rate matching with the borrower’s credit risk. The insurance companies or
pension gets cash from savers, which then could use to purchase long term bond
from the bank, the bank therefore secures the funding with so that it will make
a long-term loan. (Cameron Hume,
2017) This basically means that banks issue out bonds so that in return there
would be a percentage that will be added on the amount that’s been borrowed,
therefore the banks are making more money while they lend it out. Another main
reason why banks issue bonds is that to finance fixed assets.
that need temporary funds, the banks then use federal money bought (borrowed),
they can ask to borrow temporary money from the federal banks, make a
repurchase decision, and Eurodollar borrowing. (Cameron Hume, 2017) this means
that if commercials banks need temporary money they have several options where
to go and get what they need with an agreement of the temporary money.
mortgage backed securities contributed to the financial crisis because as they
declined in the home prises enhanced, a high number of people found that they
are struggling to make their monthly mortgage payment. This situation escorted
to a higher levels of mortgage non-payments.
large number of these home loans had been “securitized” and exchanged
in the market place. This scattering of hazard is for the most part something
worth being thankful for, yet in this occasion it additionally implied that
potential misfortunes from defaults were spread more broadly than they
generally may have been. Defaults inordinate affected certain bond issues. This
is on the grounds that in a run of the mill contract supported security
bargain, any home loan defaults at first influence just the most reduced
evaluated tranches. This implies regardless of whether the general default rate
for the pool of home loans is moderately low, the misfortune for a specific
tranche of home loan sponsored securities could be generous. At the point when
the financial specialists that hold these tranches utilize use, misfortunes can
be considerably more prominent.
worries about the lodging decay developed, advertise members started dodging
contract related dangers such as mortgage related risks. Financial specialists
turned out to be significantly more apprehensive after Bear Stearns was
compelled to close two speculative stock investments that had endured huge
misfortunes on contract sponsored securities. As the size and recurrence of
home loan related misfortunes started to expand, liquidity began to vanish for
some different sorts of securitized, settled salary securities, prompting
expanding vulnerability about their actual esteem.
pension fund is the retirement plans for the people who work in the city or
local governments. Employees who work for businesses are enclosed by the
private pension plans, however not all businesses/companies offer the same
plans. For some that has just entered the workforce, are the type of plan which
employer provides could disturb where they wish to go work.
pension is a way that you can save money for when you get into your retirement
stages. The value of your retirement money is determined by how much you have
contribution schemes is job-related where is based on your own contributions
and your employers are then both invested and then the proceeds used to buy
pensions will then benefit you into your retirement stages. The money that you
will get back depends on how much you have contributed to it. (The Pensions
defined benefit plan depends on how you will get paid because is based on how
long you have been working for the employer and how much money you have earned
differences between defined contribution and private pension is that private
pension is in your own hand, it will look at how much you have contributed to
the pensions rather than for defined benefit it looks at how many years you
have worked for that employer and how much salary you’re getting.
and casualty insurance is where they help their customers protect the
properties you own and personal belonging. For example, you’re home, your car,
your phone etc. (Allstate, 2017). they also cover and protect your liabilities
as well such as if you get into a car accident and is your fault and you have
damaged someone’s belonging it will protect you and cover you, however for car
insurance there are different types of insurance like for instant you open a
car insurance just third party cover rather than comprehensive, so third party
only cover damage to the third party so basically the person’s properties that
u have damaged will cover you, this means that you will have to sort out your
own damage to your belonging.
insurance, there are 3 types of life insurance one of them being whole life
insurance, term life assurance and annuity. So for whole life insurance is when
there is a death of a person that has whole life insurance that’s when you will
get paid out to someone that you have chosen to or legal heir of the person
that was insured. (Surbhi
S, 2017). The second type is term life assurance, so the amount that the policy
has agreed to will be paid out if the person comes to death and that will be
passed down to the nominee, or some at a certain age it will come to a maturity
of the term therefore the person will be given the money. Last one is annuity,
annuity is when the term of the policy runs out, and therefore the payment of
the policy will be to the holder, as long as he/she is still alive.
differences between life insurance and P&C insurance is that life insurance
is not a contract that can get renewed yearly and the only way for it to expire
is with the death of the insurer. P&C is something where it always can get
renewed annually or semi-annually, or monthly, this depends on what type of
insurance term and conditions are based on and agreed on. (Nick Joly, 2017)