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FINANCIAL INSTITUTIONS - Coggle Diagram

- - - - Main function: supply income to individuals after retirement
      - Source of funds: contributions from employees and employers
      - Uses of funds: invest in long-term assets such as stocks and bonds
      - Key point: stable inflows allow long-term investment planning
    - - Uses of funds: invest mainly in long-term securities
      - Key point: pool risks across many individuals to reduce individual exposure
      - Source of funds: regular premium payments from policyholders
      - Main function: provide financial protection against uncertain events
  - - - Hedge funds use advanced investment strategies, including leverage and derivatives, to achieve high returns, often with higher risk.
      - Investment companies specialize in managing portfolios of securities and making strategic investment decisions on behalf of clients.
      - Functions: Pool funds from investors to increase investment capacity. Diversify portfolios to reduce risk. Provide professional management and market expertise.
      - Investment intermediaries improve capital allocation efficiency by channeling funds from savers to investment opportunities.
      - Mutual funds collect money from multiple investors and invest in diversified portfolios managed by professional fund managers
        
        ETFs are investment funds traded on stock exchanges, allowing investors to buy and sell shares easily like stocks.
  - - - Main function: carry out trades for clients
      - Role: link buyers with sellers in financial markets
      - Source of income: commissions charged per transaction
    - - Main function: provide a structured system for trading securities
      - Role: ensure transparency and standardization in transactions
      - Key point: operate under formal rules to maintain orderly markets
    - - Main function: help corporations and governments obtain funding
      - Core activities: underwriting new securities and providing advisory services
      - Source of income: fees from issuing and consulting services
      - Key point: facilitate the process of bringing securities to market
    - - Main function: trade securities using their own capital
      - Role: hold inventories to ensure market liquidity
      - Source of income: earn from the difference between buying and selling prices
- - - - Definition & Nature
        
        Basic activities
        
        Making loans and investments (assets)
        
        Accepting deposits (liabilities) from individuals and firms
        
        Main objective
        
        Profit maximization
        
        Commercial banks are financial intermediaries that channel funds from savers to borrowers in the economy.
      - Sources of Funds
        
        Checkable Deposits
        
        Deposits that can be withdrawn at any time without prior notice
        
        Mainly used for payment purposes (checks, debit cards, transfers)
        
        Have very high liquidity, but usually offer low or no interest
        
        Non-transaction Deposits (MOST IMPORTANT)
        
        Savings deposits
        
        Time deposits
        
        Borrowings
        
        Central bank
        
        Interbank market
        
        Bank Capital
        
        Refers to equity (owners’ funds) contributed by shareholders
        
        Functions
        
        Absorb losses in case of financial distress
        
        Enhance financial stability and confidence
      - Uses of Funds
        
        Reserves
        
        Required reserves
        
        Excess reserves
        
        Purpose
        
        Ensure the bank can meet withdrawal demands
        
        Maintain liquidity and stability
        
        Securities
        
        Investments in
        
        Government bonds
        
        Treasury bills
        
        Characteristics
        
        Low risk
        
        High liquidity
        
        Loans (MOST IMPORTANT)
        
        Business loans
        
        Mortgage loans
        
        Consumer loans
        
        Other Assets
        
        Equipment
        
        IT systems
        
        Buildings and branches
  - - - Depository institutions that specialize in household savings and lending
      - Less diversified compared to commercial banks
      - Focus mainly on:
        
        Consumer lending
        
        Mortgage (housing) loans
      - Play an important role in promoting home ownership
    - - Savings and Loan Associations (S&Ls)
        
        Sources of Funds
        
        Primarily from savings deposits
        
        Borrow from Federal Home Loan Banks (FHLBs)
        
        Uses of Funds
        
        Engage in limited commercial lending
        
        Residential mortgage lending
      - Mutual Savings Banks
        
        Ownership
        
        Owned by depositors rather than shareholders
        
        Depositors share in the institution’s benefits
        
        Sources of Funds
        
        savings deposits
        
        Uses of Funds
        
        Mortgage loans
        
        Safe, low-risk financial assets
      - Credit Unions
        
        Ownership
        
        Non-profit cooperative institutions
        
        Owned by members who share a common bond:
        
        Same employer
        
        Same profession
        
        Same community
        
        Sources of Funds
        
        Member deposits
        
        Insured by the NCUA
        
        Uses of Funds
        
        Consumer loans (personal loans)
        
        Small-scale lending