Principles of Business Finance

Key Concepts in Financial Institutions

Definition of Financial Institutions

• Organizations that provide financial services to consumers, businesses, and governments.
• Essential for the flow of money and capital in the economy.

Functions of Financial Institutions

• Loan/Credit Facilities: Providing loans to individuals and businesses.
• Savings and Deposits: Accepting deposits for safekeeping.
• Payments: Facilitating transactions and payments.
• Investments: Offering investment opportunities.

Types of Financial Institutions

Central Bank

• Oversees the financial system, controls inflation, and licenses banks.
• Roles:
  • Prints currency.
  • Acts as the government's bank.
  • Controls the monetary system and interest rates.
  • Lender of last resort to commercial banks.

Commercial Banks

• Retail banks that deal directly with the public and businesses.
• Motivated by profit; examples include National Commercial Bank, Bank of Nova Scotia, etc.

Non-Bank Financial Institutions

• Credit Unions: Not-for-profit organizations owned by members.
• Insurance Companies: Provide coverage against various risks.
• Building Societies: Aid in mortgage lending and savings.
• Micro-lending Agencies: Offer small loans to low-income individuals.
• Government Agencies: Support business funding and insurance.

Services Offered by Financial Institutions

• Night Safe Deposits: Secure overnight storage for cash.
• Online Banking: Manage accounts and transactions via the internet.
• Advisory Services: Financial advice for loans and savings.
• Credit/Debit Cards: Facilitate purchases and banking transactions.
• Trustee Work: Manage assets on behalf of beneficiaries.
• Deposit Boxes: Safe storage for valuables.
• ATM Services: Conduct various banking operations.
• E-trade & Settlement Services: Facilitate online trading and settlements between customers.
• Remittance Services: Transfer money across borders, often used by expatriates.

Role of Financial Regulatory Bodies

• Ensure fairness in financial transactions and protect consumer interests.
• Purpose:
  • Safeguard financial dealings for individuals and businesses.
  • Promote trust and honesty in the financial system.

Examples of Regulatory Bodies

• Central Bank: Regulates monetary policy and banking operations.
• Financial Services Commission: Supervises non-banking financial entities.
• Supervisors of Insurance: Regulates the insurance sector.
• Jamaica Deposit Insurance Corporation: Guarantees deposits up to $1,200,000, enhancing confidence in banks.

Regulatory Functions of Central Bank

• Varies liquid assets ratio, adjusts bank rate, and enforces reserve requirements.