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Lesson Overview

  • Title: Financial Institutions

  • Subject: Business Finance

  • Course: Accountancy, Business, and Management (ABM)

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Importance of Financial Institutions

  • Indirect Lending:

    • Depositing money in a bank account means you are indirectly lending it.

  • Facilitating Flow:

    • Financial institutions facilitate the flow of savings to lending and investments.

  • Daily Money Management:

    • It is essential for people to manage finances to achieve specific financial goals.

Role of Banks

  • Core Functions:

    • Accept deposits from individuals, households, and companies.

    • Pool funds for lending to borrowers.

    • Grow money from interest paid by borrowers.

Financial Planning and Future Security

  • Accumulation Phase:

    • People plan for future family needs and investments.

    • Common investment types include time deposits, stocks, and life insurance.

  • Achieving Financial Goals:

    • Identify necessary services offered by various financial institutions.

Learning Objectives

  • Objectives:

    • Explain definitions and purposes of financial institutions.

    • Determine importance in specific situations.

    • Recommend financial decisions regarding institutions.

Categories of Financial Institutions

  • Depository Institutions:

    • Accept deposits and earn from interest payments.

    • Include central banks, commercial banks, internet banks, credit unions, savings and loan associations.

  • Non-Depository Institutions:

    • Do not accept deposits but offer insurances and other financial products.

    • Include investment banks, brokerage firms, insurance companies, mortgage companies.

Bank Loans

  • Different types of loans include:

    • Personal loans, home loans, car loans, business loans.

    • Banks typically charge interest as income; rates are regulated by the Central Bank.

Making Bank Deposits

  • Indirect Lending:

    • When depositing, you lend money to the bank, which then lends to others, earning interest.

    • Deposit insurance provisions exist (e.g., PDIC in the Philippines) to protect savings.

Non-Depository Financial Institutions

  • Investment Banks:

    • Handle long-term securities, facilitate transactions and buy bonds for investors.

  • Brokerage Firms:

    • Engage in buying/selling securities and connecting traders and investors.

  • Insurance Companies:

    • Provide coverage for financial loss through premium payments.

  • Mortgage Companies:

    • Focus on lending through property mortgages, primarily for home loans.

Financial Institutions During Crises

  • Discuss the pivotal role financial institutions play during crises (e.g., pandemics) in providing liquidity and support.

Conclusion

  • Financial institutions are critical intermediaries that ensure the efficient flow of funds. They serve individual participants in the financial market by providing various products and services to facilitate financial transactions.