Financial Institutions is an establishment that focuses on dealing with financial transactions. Financial institutions deal with various financial activities associated with bonds, debentures, stocks, loans. This is an institution which collects funds from the public and places them in financial assets, such as deposits, loans, and bonds, rather than tangible property. Mostly, financial institutions are composed of organizations such as banks, trust companies, insurance companies and investment dealers. Nearly everybody is somehow related to the financial institution on a regular basis. Taking out loan, depositing cash or even currency exchange, all must be done through financial institution. Financial institution also acts as financial intermediaries. There are a few functions in financial institution. The main function is that, financial institution is the transformation of assets which are acquired through markets, into a wider and more preferable form, which becomes their liability. The transformation issue claims to their customers that have characteristics different from those of their own assets. For example, banks accept deposits as liability to convert them as a loan. Besides that, another function is called size-transformation. This function choose and manage portfolios whose risk and return are alter by applying resources to acquire better information and reduce or overcome transaction cost. For example, bank will provide large volume of finance on the basis of small deposits or unit capital. Other than that, one of the most common functions is risk-transformation. Risk-transformation distributes risk through diversification and thereby reduces it for savers as in the case of mutual funds. By doing this there will be less risk involve. Maturity transformation is also one of the functions in financial institution. These offer savers alternate form of deposits according to their liquidity preferences, and provide borrowers with loans and requisite maturities. The functions of financial institutions like investment banks are also vital and related to the investment sector. These companies are involved in a number of financial activities, such as underwriting securities, selling securities to investors, providing brokerage services, and fund raising advice. Also financial institutions are involved in exchanging of assets on behalf of their customers. Other than that, exchanging of assets for their own personal accounts is also part of their job. Furthermore, financial institutions create financial assets for their customers and sell those assets to other market participants for a definite emolument. In addition to all these functions, financial institutions are also involved in providing investment advice to market participants and managing the portfolios of market participants.
There three different ways to transfer funds. The direct transfer is one of the ways to transfer funds. Direct transfer means a transfer of an asset from one type of tax-deferred retirement plan, it is also a movement from one plan or custodian directly to another. In most cases, the two plans involved will be similar. Direct transfers are not considered to be distributions and are therefore not taxable as income or subject to any penalties for early distribution. This type of transfer is now usually done electronically, without a check being cut from one custodian to another. Most nations does not consider direct transfer as a distribution due to the term moving funds from one account to another qualified account. This is because it does not constitute a disbursal to the account holder. Since its formation, direct transfers has been and continues to provide clients with top-of-the-industry services- working closely with timeshare companies, resort developers and government agencies to make sure each and every single transfer is done successfully and with utmost precision.
Example of direct transfer is the use of direct transfer when an individual accepts a new job with a new employer. Than later on assuming that, both employers offer a similar retirement plan, it is possible to move the funds from the original plan to the plan that is offered by the new employer. This allows the employee to avoid having to pay taxes on the funds that are transferred, since the transaction counts as a direct rollover. Direct rollover is from qualified plans that are the form of direct transfer. Last time most transfers take several days to complete, although this process is now generally faster in the electronic and computer age than in the past.
The other way of transferring funds is called indirect transfer through investment banking house. Now, investment banking is also known as merchant bank. These are a firm that originates, underwrites and distributes new securities issues of corporations and governments agencies. The investment bank may also assist companies involved in mergers and acquisitions and provide services such as market marketing, fixed income instruments, foreign exchange commodities and equity securities. Investment bank is different from commercial bank and retail bank because unlike those banks, investment bank does not take deposits. In the underwriting and distribution of most security issues a syndicate of investment banking firms is organized. If the amount of capital sought is large enough to prevent one investment banking firm from undertaking the risk of purchasing the entire issue, the investment bank that initiates the issue with the corporation will organize a group of investment bankers to divide the liability for the purchase. In such a case the originator will act as manager of the group.
Investment banks offer services to both corporations issuing securities and investors buying securities. For corporations, investment bankers offer information on when and how to place their to an investment bank's reputation, and hence loss of business. Therefore, investment bankers play a very important role in issuing new security offerings.
Another way to transfer funds is called the indirect transfer through financial intermediaries. A financial intermediary is a financial institution that accepts money from savers or investors and loans funds to borrowers. This will provide a link through those who are seeking for financial help and those who are seeking for credit. There are a few roles of financial intermediaries. Financial intermediaries include savings and loan associations, credit union and investment companies, life insurance companies, saving banks and commercial banks. For example, in the sale of a house, a bank usually serves as a financial intermediary by providing a mortgage to the homebuyer. In some non-traditional transactions, a bank may buy a product, such as corn, and immediately re-sell it for a profit to a third party. Most transactions requiring a loan to one of the parties include financial intermediaries. Financial intermediaries are divided to depository institution, savings contractual institutions and investment companies.
Depository institution is an organization that specializes in depository lending, and the services offered by these institutions are a bit different from that of other financial service providers. It is also known as deposit-taking organization. The function of this organization is to accept deposits and to use the money collected for lending purposes. The depository institutions work in association with the credit unions and many other cooperative organizations. The depository institutions make use of the deposits kept in checking accounts. Common examples of depository institutions are retail banks and saving and loan associations, both of which take deposits into safekeeping and use them to make loans to other customers.
Besides that, the savings contractual institutions is an institution that obtain funds under long-term contractual arrangements and invest the funds in the capital markets such as the best forex trading markets. These institutions are characterized by a relatively steady inflow of funds from contractual commitments with their insurance policyholders and pension fund participants. In general, they can predict their liabilities fairly accurately, and thus they do not have to worry as much about losing funds. An example of a contractual savings institution is a life insurance company. Life insurance companies obtain funds by selling insurance policies that protect against loss of income from premature death or retirement. In the event of death the policyholder's beneficiaries receive the insurance benefits in with retirement policyholder receives the benefits. In addition to his protection many life insurance policies provide some savings.
On the other hand, investment companies invests the money it receives from investors on a collective basis, and each investor shares in the profits and losses in proportion to the investor's interest in the investment company. Some types of companies that might initially appear to be investment companies may actually be excluded under the federal securities laws. For example, private investment funds with no more than 100 investors and private investment funds whose investors each have a substantial amount of investment assets are not considered to be investment companies, even though they issue securities and are primarily engaged in the business of investing in securities. This may be because of the private nature of their offerings or the financial means and sophistication of their investors. As a whole, households are savings surplus units, whereas businesses and governments are savings deficit units. Financial intermediaries redistribute savings into productive uses and, in the process, serve two other important functions
