ACCOUNTS & FINANCIAL SERVICES

Financial Institutions
Objective
• Distinguish between the different types of financial institutions.
Financial Institutions
• A financial institution is one that provides financial services
for its clients or members.
• There are three major types of financial institutions:
• Deposit-taking institutions
• Insurance companies and pension funds
• Brokers, underwriters and investment funds
Types of Financial Institutions
• Credit Unions
• Commercial Banks
• Central Banks
• Insurance Companies
• Offshore Institutions
• Investment Companies
• Bureaux de Change (Cambios)
Credit Unions
• This is a cooperative financial institution that is owned and
controlled by its members, for the purpose of promoting
savings for its members.
• Credit unions differ from other financial institutions because
the members who have accounts in the credit union are its
owners of which they elect a board of directors.
Commercial Banks
• This is a type of financial intermediary geared towards
lending money to its customers.
• Commercial banks accept deposits to personal and
corporate accounts, then uses those deposits to finance
individual and business loans.
Services offered by Banks
• Deposit/Saving account • Mortgage facilities
• Current/Cheque account • Debit and Credit Cards
• Standing orders • Bank loans
• Direct debit facilities • Banker’s draft facilities
• Foreign exchange facilities
• Credit transfer system
• Advice on stocks & shares
• Overdrafts
 Types of Bank Accounts: Features
Current Account Savings Account Money Market Certificate/Fixed
Account Deposit Account
Usually attract no Interest is paid on Interest is paid on this Fixed interest rate
interest on deposits deposits account
Allows for the A debit card is Minimum balance Easy withdrawal of
payment of bills given by the bank should be maintained funds
using cheques in account
A fee is paid by the Allows for the Restrictions on the Funds must be
account holder for payment of bills number of deposited for a
the bank operating withdrawals per fixed time
on their behalf. month
Central Banks
• This is a banking institution within a specific country that
acts as the authority for implementing government’s
monetary policy.
• It is also referred to as a ‘reserve’ bank.
• Central banks differ from commercial banks as they have
the exclusive right to create currency for a specific country.
Functions of Central Banks
1. Issue bank notes and coins
2. Ensuring national currency and money supply is stable
3. Implementing monetary policies
4. Controlling loan interest rates
5. Acts as a lender to the government and banking sector
Insurance Companies
• Insurance is a form of risk management, primarily used as
security in the event of a loss.
• In effect it is the transfer of risk or loss from one entity (a
business or individual) to the insurer, for a premium.
• Insurance is also a form of investment for business owners
as well as private individuals.
Offshore Institutions
• Offshore Financial Centres (OFCs) refer to low-tax countries
that offer specialist corporate and commercial services to
non-residents.
• They specialize in the investments of offshore funds.
Investment Companies
• These companies main business is holding securities (this is
a negotiable instrument representing financial value) of
other companies purely for investment purposes.
• An investment company invests the money it receives from
its investors; the profits gained or losses incurred are shared
among the investors, according to the amount invested.
• Money can be invested in areas such as real estate and
foreign exchange.
Bereaux de Change (cambio)
• This is a business whose customers exchange one currency
for another. They are also referred to as:
• Foreign exchange
• Money exchange
• Currency exchange
• The rate of exchange is set internationally by the foreign
exchange market.
• Businesses earn from the currency exchange because of the
differences between the buying and selling rate.