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.