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NONBANK OPERATION (Finance companies (sources off funds (loans from banks,…

- - - - Provide financing for customers of retail stores or whole salers
      - provide loans and mortgage
    - - offer loans to small businesses
      - provide financing in the form of credit cards
    - - provide whole sale financing to distributiors of the parent's companu products and purchase receivables of the parent's company
  - - - finance companies commonly borrow from commercial banks and can consistently renew the loans over time.
    - - finance companies in need of long-term funds can issue bonds. Decision of issuing bonds depend on the company’s balance sheet structure and its expectations about future interest rates.
    - - finance companies can build their capital base by retaining earnings or issuing stock
    - - financial companies are available only for short-term financing, and can roll over their issues. The best-known ones can issues CP through direct placement, others use dealers.
    - - some states allow finance companies obtain funds by offering customer deposits under some conditions although it has not been a major source of funds.
  - - - finance companies also provide business (commercial) loans.
    - - finance companies offer real estate loans in the form of mortgages on commercial real estate and second mortgages on residential real estate.
    - - offer automobile loan, home improvement, mobile homes, and others.
- - - - The probability of the condition
      - Degree of competition within the industry
      - The present value of the expected payment
      - Dilemma when setting insurance premiums:
        
        Rely on statistics about the general population
        
        Adverse selection problem
        
        Moral hazard problem
  - - - Premiums
      - provision of annuity plans
      - investment income
      - capital
        
        retaining earning
        
        issuing new stock
    - - Government securities
      - Corporate securities
        
        corporate bonds are the most popular asset of life insurance companies
        
        They usually hode a mix of medium- and long-term bonds for cah management and liquidity needs
      - Mortgages
        
        types of mortgage, including one to four family, multifamily, commercial, and farm-related.
        
        These mortgages are typically originated by another financial institution and then sold to insurance companies in the secondary market
      - Real estate
        
        purchases real estate and lease it for commercial purposes.
      - policy loans
        
        lend a small protion of their funds to whole life policyholders (called policy loans).
  - - - Property insurance: buildings, automobiles, othe assets.
      - Casualty insurance: potential liabilites for harm to others (products failure of accidents)
    - - including coverage for hospital stays, visit the phisicians, and surgical procedures.
    - - Protect business from many types of risk
      - protect a business against potential liability of claims by its employees and customers.
    - - The insurance on bonds is only as good as the insurance company’s ability to cover claims
    - - Protects the lender that provide mortgage loans in the event that homeowners cannot cover their payments and default on their mortgages
- - - - Open-end funds:
        
        Investors can purchase shares directly from and sell (redeem) their shares back to the open-end fund at any time
      - Closed-end funds:
        
        Do not redeem the shares they sell
    - - Stock mutual fund
      - Bond mutual fund
      - Money market mutual funds
      - Exchange-traded funds (ETFs)
      - (Venture capital funds; Private equity funds; Vulture funds; Hedge funds; Real estate investment trusts)
- - - - Include saving banks and savings and loan associations (S&Ls
      - The two types of thrifts now have very similar sources and uses of funds.
      - Ownership of savings institutions (SIs):
        
        SIs are classified as either stock owned or mutual
        
        Stock-owned institutions are more susceptible to unfriendly takeovers
        
        SI is involved in an acquisition, it first converts to a stock-onwed SI.
    - - Deposits
      - Borrowed funds
      - Capital
    - - Cash
        
        To satisfy reserve requirements and accommodate withdrawal requests.
      - mortgages
        
        are the primary asset of SIs, typically have long-term maturities and can usually be prepaid by borrowers.
      - Mortgage-back securities
        
        the return on these securities is highly influenced by the default rate on the underlying mortgages.
    - - CUs are nonprofit organizations composed of members with a common bond, such as an affliation with a particular labor union, church, university, or residential area.
      - Ownership of CUs:
        
        Technically owned by the depositors
        
        CUs can be federally or state chattered.
  - - - Facilitating new stock offerings
        
        Origination
        
        Underwriting
        
        Distribution
        
        Advising
        
        Private placement of shares
      - Facilitating new bond offerings
        
        Origination
        
        Underwriting
        
        Distribution
        
        Advising
        
        Private placement of bonds
      - Facilitating leveraged buyouts
        
        Assess the market value of the firm
        
        Arrange financing
        
        Help the acquirer purchase any common stock
      - Facilitating arbitrage
        
        Arbitrage activity in the security industry involves purchasing undervalued shares and reselling them at a higher price.
        
        The securities firms work closely with arbitrage firms by searching for undervalued firms and reasing funds for arbitrage firms.
      - Facilitating corporate restructuring
        
        Advising on corporate restructuring
        
        Financing merges and acquisitions
      - Providing brokerage services
        
        Securities firms commonly serve as brokers by executing buy or sell orders desired by their customers
        
        Brokerage firms have reduce placing order costs by implementing online order systems.
      - Investing their own funds:
        
        use some of their funds to invest in a wide range of securities including stocks, bonds, mortgage-backed securities, and various types of derivatives.