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ORGANIZATIONAL SET UP OF Financial Institutions. Functions of Financial Institutions. 1. Aids the flow of capital 2. Credit allocation 3. Provides economies of scale and scope 4. Satisfies the needs of general public 5. Provides specialization and expertise

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functions of financial institutions
Functions of Financial Institutions
  • 1. Aids the flow of capital
  • 2. Credit allocation
  • 3. Provides economies of scale and scope
  • 4. Satisfies the needs of general public
  • 5. Provides specialization and expertise
  • 6. Assists asset transformation
  • 7. Offers INTERMEDIATION
intermediation
Intermediation
  • The process of transforming a secondary security into a primary security by a financial institution.
  • It relates to financial investments by savors
dis intermediation
Dis-intermediation
  • The process of reversing or rejecting the transfer of funds into the financial institutions.
  • This refers to the low deposit interest rates or high operating costs charge to customers.
illustration of disintermediation
Illustration of Disintermediation
  • The removing of Middlemen
  • The dis- or re-channeling funds flow from the FI
  • Changing Role to the Servicing of Markets
    • Security Investments
    • Mutual Funds
    • Insurance
types of intermediation
Types of Intermediation
  • 1. Liquidity
  • 2. Maturity
  • 3. Denomination
  • 4. Risk
types of financial institutions
Types of Financial Institutions
  • By Banking Business Nature:
    • Banks
    • Non-Banks
    • Non-Finance
slide8

By Business Operations:

    • Thrift type
    • Contractual type
    • Investment type
    • Other type
thrift type financial institutions
Thrift-type Financial Institutions
  • Banks:
    • Commercial Banks
    • Savings Banks
    • Investment Banks (Merchant Banks)
    • etc
  • Non-Banks:
    • Deposit-taking Company, Savings and Loan, Home Loans, Building Society,
    • Credit Unions
contract type financial institutions
Contract-type Financial Institutions
  • Insurance Companies:
    • Life Insurance
    • Accident and Healthy Insurance
  • Pension Funds:
    • Mandatory Providence Funds
    • Retirement Funds/Pension Funds
investment type financial institutions
Investment-type Financial Institutions
  • Investment Companies:
    • Closed-end Investment Companies - Investment Brokers
    • Open-end Investment Companies - Mutual Funds/Unit Trust
    • Real Estate Trust Investment Companies
other financial institutions
Other Financial Institutions
  • Finance Companies
  • Factors Companies
  • Lease Companies
  • Mortgage Companies
  • Credit Card Companies
  • Non-finance Financial Institutions:
    • General Electric, Ford Motors, Toyota Motors
    • wholesalers, Manufactures, Department Stores
why financial institutions
Why Financial Institutions?
  • Fulfill economic goals
  • Reduce transaction and information costs
  • Provide liquidity
  • Prevent risks
  • As transmission of monetary policy
  • Provide payment mechanism
  • Supply credit allocation
analysis of financial institutions
Analysis of Financial Institutions
  • 1. Transaction Costs
  • 2. Information Asymmetry -- Moral Hazard
  • 3. Financial Risks
  • 4. Financial Innovation
solution
Solution
  • Information Asymmetry--Moral Hazard:
  • Information Symmetry and Full Disclosure
  • Regulation Reform
  • Financial Intermediation
  • Financial Risks:
  • Risk Management and Control
  • Burden Administration
solutions
Solutions
  • Financial Innovations:
  • Enhance Internal Control--
  • Planning, Control, and Administration
  • Tighten Asset Management and Quality
  • Modernized Operation System
  • Strengthen Regulation and Monitoring
duties of the management of financial institutions
Duties of the Management of Financial Institutions
  • 1. Determining the optimal capital structure
  • Assets, Liabilities, and Capital
  • 2. Managing interest rate/currency/credit risks
  • 3. electing/Pricing investments and liabilities
  • Maturity Matching, Profit Making
  • 4. Operating effectively
  • Information Processing
  • Communication Technology