Financial institutions are those institutions who uses techniques to convert individual savings into financial investments and loans. Let us understand some of the types of financial institutions in this module.
Commercial Banking
Commercial banks provide administrations services such as making business advances, offering fundamental investment schemes, encouraging saving deposits, fixed deposits, Issuing bank drafts and bank cheques, giving overdraft facilities, bond investment schemes, cash management, mortgage loans, debit cards, credit cards, etc.
There are two types of commercial banks, Public Commercial Banks and Private Commercial Banks. Public commercial banks refers to types of financial institutions in which government holds major stake usually to emphasize on social objectives than on profitability. Whereas Private Commercial Banks are fully owned, managed and controlled by private supporter and they are free to operate without any government interference. For more details refer to the tutorial links.
Insurance Companies
Insurance companies are financial entities that assist individuals in transferring the risk of experiencing a financial loss. A large number of individuals who want to protect themselves or their loved ones from certain losses pay payments to an insurance firm, which pools the risk and reduces the cost of insurance. Automobile accidents, fires, incapacity, lawsuits, disease, and death are all examples of losses that might occur. Insurance firms also assist people and businesses in risk management and asset preservation.
Brokerage Companies
Brokers companies are types of financial institutions which acts as an middleman between purchasers and sellers. They primarily help in the execution of securities transactions. Brokerage businesses allow their customers to conduct transactions in a variety of securities, including stocks and bonds, mutual funds, exchange-traded funds (ETFs), and certain alternative assets.
After a transaction is successfully completed, a brokerage business is rewarded through commission payments. When a trading order for particular stocks is executed, for example, a transaction fee is often charged to the individual who placed the order. He pays this charge in exchange for the efforts made by the brokerage firm in order to complete the transaction.
Mortgage Financial Institutions
Mortgage companies are financial firms that originate or provide funding for mortgage loans. While the majority of mortgage firms cater to the needs of individual consumers, a few are focused only on financing solutions for commercial real estate.