Types of financial institutions:
1) Bank (from Italian banco – bench) – a financial institution engaged in:
a) accepting deposits;
b) on granting loans;
c) organization of settlements;
d) purchase and sale of securities.
2) Insurance company – a company rendering insurance services, insuring life, health, property and liability.
3) Investment company – a financial and credit institution which collects funds from private investors through the sale of its own securities. It acts as an intermediary between a borrower and a private investor, expressing the interests of the latter.
4) Pension fund – a fund established by private and state companies, enterprises to pay pensions and benefits to persons who have made pension contributions to the fund.
5) Stock Exchange (from Latin bursa – purse, bag) is an organized market, where transactions with securities and other financial documents are carried out.
6) Interstate Financial and Credit Institute (World Bank, International Monetary Fund, European Bank for Reconstruction and Development, etc.) – an institution involved in financing and lending to different countries, promoting world trade, helping to stabilize the financial system of developing countries.
The main purpose of financial institutions is organization of intermediation, i.e. effective movement of funds (in direct or indirect form) from savers (ready to transfer them for a fee to a person experiencing financial starvation) to borrowers (who have in their portfolio a profitable investment project, but do not have sufficient sources of financing for its implementation).
The banking system and its structure
The banking system is a combination of banks, credit institutions and individual economic organizations operating in a country.
The tasks of the banking system are:
- ensuring economic growth;
- to regulate inflation;
- regulation of the balance of payments.
