WELCOME

FINANCIAL
INSTITUTION
SUBMITTED BY
NAME :Fahim Hssan Shariar Aryan
Khan
PROGAME:B.B.A
ID:18192101149
INSTITUTION:BANGLADESH
UNIVERSITY
of BUSINESS and
TECHNOLOGY,DHAKA.
INTRODUCTION
Financial institution means, a financial institution is a
engaged in a business of dealing with financial and
monetary transactions such as deposits, loans,
investments, and currency exchange.
HOW FINANCIAL
INSTITUTION WORKS
Financial institutions serve most people in some way, as financial
operations are a critical part of any economy, with individuals and
companies relying on financial institutions for transactions
and investing. Governments consider it imperative to oversee and
regulate banks and financial institutions because they do play such
an integral part of the economy. Historically, bankruptcies of
financial institutions can create panic.
In the United States, the Federal Deposit Insurance Corporation
(FDIC) insures regular deposit accounts to reassure individuals and
businesses regarding the safety of their finances with financial
institutions. The health of a nation's banking system is a linchpin of
economic stability. Loss of confidence in a financial institution can
easily lead to a bank run.
KEY TAKEAWAYS
A financial institution (FI) is a company engaged in the
business of dealing with financial and monetary
transactions such as deposits, loans, investments, and
currency exchange.
Financial institutions encompass a broad range of
business operations within the financial services sector
including banks, trust companies, insurance companies,
brokerage firms, and investment dealers.
Financial institutions can vary by size, scope, and
geography.
TYPES OF
FINANCIAL INSTITUTIONS
Financial institutions offer a wide range of products and
services for individual and commercial clients. The specific
services offered vary widely between different types of financial
institutions:
Commercial Banks
A commercial bank is a type of financial institution that
accepts deposits, offers checking account services, makes
business, personal, and mortgage loans, and offers basic
financial products like certificates of deposit (CDs) and savings
accounts to individuals and small businesses. A commercial
bank is where most people do their banking, as opposed to an
investment bank. 
Investment Banks
Investment banks specialize in providing services
designed to facilitate business operations, such as
capital expenditure financing and equity offerings,
including initial public offerings (IPOs). They also
commonly offer brokerage services for investors, act as
market makers for trading exchanges, and manage
mergers, acquisitions, and other corporate
restructurings.
Insurance Companies
Among the most familiar 
non-bank financial institutions are insurance
companies. Providing insurance, whether for
individuals or corporations, is one of the oldest
financial services. Protection of assets and protection
against financial risk, secured through insurance
products, is an essential service that facilitates
individual and corporate investments that fuel
economic growth
Brokerage Firms
Investment companies and brokerages, such as
mutual fund and exchange-traded fund (ETF) provider
Fidelity Investments, specialize in providing
investment services that include wealth management
and financial advisory services. They also provide
access to investment products that may range from
stocks and bonds all the way to lesser-known
alternative investments, such as hedge funds and
private equity investments.
LOAN BASIC

Learn the language of loans. From key credit ratios to the

various types of loans that you or your business can obtain
to help you grow.
COLLATERAL:
Collateral is an asset that a lender accepts as security for
extending a loan. If the borrower defaults on her loan
payments, the lender may seize the collateral and sell it to
recoup some or all of his losses. Collateral can take the
form of real estate or other kinds of assets, depending on
what the loan is used for.
HOW COLLATERAL
WORKS

Loans that are secured by collateral are typically

available at substantially lower interest rates than
unsecured loans. A lender's claim to a borrower's
collateral is called a lien. The borrower has a
compelling reason to repay the loan on time because if
she defaults on it, then she stands to lose her home or
whatever other assets she has pledged as collateral.
 
AMORTIZED LOAN
An amortized loan is a loan with scheduled periodic
payments that are applied to both principal and
interest. An amortized loan payment first pays off the
relevant interest expense for the period, after which
the remainder of the payment reduces the principal.
Common amortized loans include auto loans, home
loans, and personal loans from a bank for small
projects or debt consolidation.
KEY TAKEAWAYS
An amortized loan is a loan with scheduled periodic
payments that are applied to both principal and
interest.
An amortized loan payment first pays off the interest
expense for the period while the remaining amount
reduces the principal.
As the interest portion of the payments for an
amortization loan decreases, the principal portion
increases.
HOW an AMORTIZED
LOAN WORKS

Interest is calculated based on the most recent ending

balance of the loan and the interest amount owed
decreases as payments are made. This is because any
payment in excess of the interest amount reduces the
principal, which in turn, reduces the balance on which
the interest is calculated. As the interest portion of an
amortization loan decreases, the principal portion of the
payment increases. Therefore, interest and principal
have an inverse relationship within the payments over
the life of the amortized loan.
COVENANT

In legal and financial terminology, a covenant is a promise

in an indenture, or any other formal debt agreement, that
certain activities will or will not be carried out. Covenants
in finance most often relate to terms in a financial
contract, such as a loan document or bond issue stating
the limits at which the borrower can further lend. 
Covenants are often put in place by lenders to protect
themselves from borrowers defaulting on their obligations
due to financial actions detrimental to themselves or the
business.
HOW COVENANT
WORK

Covenants are most often represented in terms of financial

ratios that must be maintained, such as a maximum debt-
to-asset ratio or other such ratios. Covenants can cover
everything from minimum dividend payments to levels
that must be maintained in working capital to key
employees remaining with the firm.
Once a covenant is broken, the lender typically has the
right to call back the obligation from the borrower.
Generally, there are two types of covenants included in loan
agreements: affirmative covenants and negative covenants.
Affirmative Covenants
An affirmative or positive covenant is a clause in a loan
contract that requires a borrower to perform specific
actions. Examples of affirmative covenants include
requirements to maintain adequate levels of
insurance, requirements to furnish audited financial
statements to the lender, compliance with applicable
laws, and maintenance of proper accounting books
and credit rating, if applicable.
Negative Covenants
Negative covenants are put in place to make borrowers
refrain from certain actions that could result in the
deterioration of their credit standing and ability to repay
existing debt. The most common forms of negative
covenants are financial ratios that a borrower must
maintain as of the date of the financial statements. For
instance, most loan agreements require a ratio of total debt
to a certain measure of earnings not to exceed a maximum
amount, which ensures that a company does not burden
itself with more debt than it can afford to service.
FINANCING

Financing is the process of providing funds for 

business activities, making purchases or investing. 
Financial institutions such as banks are in the business
of providing capital to businesses, consumers, and
investors to help them achieve their goals. The use of
financing is vital in any economic system, as it allows
companies to purchase products out of their immediate
reach. Financing is key to Fundera's business model, for
instance. It is difficult to gain financing while in 
financial distress.
KEY TAKE AWAYS
Financing is the process of funding business activities, make
purchases or investments.
The main advantage of equity financing is that there is no
obligation to repay the money acquired through it.
Equity financing places no additional financial burden on the
company, though the downside is quite large.
Debt financing tends to be cheaper and comes with tax breaks.
However, large debt burdens can lead to default and credit risk.
The weighted average cost of capital (WACC) gives a clear
picture of a firm's total cost of financing.
UNDERSTANDING
FINANCING
Understanding Financing
There are two main types of financing available for
companies: debt and equity. Debt is a loan that must
be paid back often with interest, but it is typically
cheaper than raising capital because of tax deduction
considerations. Equity does not need to be paid back,
but it relinquishes ownership stakes to the
shareholder. Both debt and equity have their
advantages and disadvantages. Most companies use a
combination of both to finance operations.
TYPES OF
FINANCING
Debt Financing:
Most people are familiar with debt as a form of
financing because they have car loans or mortgages.
Debt is also a common form of financing for new
businesses. Debt financing must be repaid, and
lenders want to be paid a rate of interest in exchange
for the use of their money
: Equity Financing
"Equity" is another word for ownership in a company.
For example, the owner of a grocery store chain needs
to grow operations. Instead of debt, the owner would
like to sell a 10% stake in the company for $100,000,
valuing the firm at $1 million. Companies like to sell
equity because the investor bears all the risk; if the
business fails, the investor gets nothing.
REFERANCES
All Information Gathered By:
Investopedia,
Internet
That’s All
Thank You
 Any Questions?