Money in its various manifestations has always been and will be the basis of economic relations at the micro and macro levels. A financial institution is an active participant in the monetary system of a particular country or international financial market.
The concept of financial institutions
Money is also a subject of trade, the sellers of which are credit institutions. A financial organization is an economic agent (most often a legal entity) operating in the financial market under a license and providing services for issuing loans, selling securities and other transactions related to the formation of cash flows.
Functions of financial companies
In fact, financial companies perform intermediary functions for the redistribution of funds. Their current assets are deposits accepted for a certain remuneration from the population and legal entities, which are subsequently “sold” under the guise of loans to other participants in credit relations. Of course, this is a primitive model of the mechanism of functioning of financial intermediaries, but its principle remainsgeneral, only the scale, form and participants of the transaction change. Thus, credit institutions perform the following functions:
- Participation in the formation and functioning of the money and securities market.
- Redistribution of cash income in the form of savings of the population, that is, their transformation into investment funds.
- Advice to participants in economic relations and financial management.
- Assessing and minimizing risks.
Modern financial institutions, their types and functions
Some of the distinctive characteristics of the participants in monetary relations, as well as the features of their provision of services, made it possible to classify them into several groups. At the level of any modern state, there may be the following forms of financial organizations:
- Banks are intermediary organizations whose turnover includes highly liquid assets: money (electronic, cash) and securities.
- Non-bank credit organizations - indirectly participate in the redistribution of savings. Their field of activity is rather highly specialized financial management of client income.
- Investment companies – perform economic risk assessment and identify the most attractive investment areas.
- Credit unions provide savings and loan services to members of the community. They differ from commercial companies in that they do not pursue the goal of making a profit
Banks, their features and types
Bank financial institution -this is an intermediary that helps to “sell” money or a product / service, provides consulting services in the field of financial investments. Thus, three types of banks can be distinguished:
- The Personal Finance Bank is a commercial institution that provides cash loans to individuals or businesses for a fixed fee. Interest on loans issued by customers is the main source of income for commercial banks. The expenses of these credit companies are interest on deposits (customer investments). It is depositors' deposits that form the bulk of the bank's working capital.
- Sales financing bank. The service of this type of institution is the mediation in the sale of durable goods in installments. At the same time, the offer and the sale of goods itself is carried out not by a bank, but by a trading company. The bank only oversees the issue of payment for the purchase.
- An investment bank is a member of the national and international financial systems. His clients are legal entities and even the government of the state. The main task of the investment institution is to attract investments in various sectors of the economy, as well as mediation in the resale of businesses and in the field of securities transactions.
The division of commercial banks according to the proposed option is rather conditional, since most credit organizations cover all known areas of activity: both financing and investmentfinancial management.
Non-bank credit organizations
Non-bank credit institutions are commercial enterprises that can, on the basis of a license, carry out certain banking operations. The principle of operation is reduced to settlement operations, since such structures have much less authority than banking financial organizations. Examples of this group of companies are as follows:
- Insurance companies. The principle of operation is reduced to the issuance of promissory notes used by clients to cover unforeseen costs, the list of which is specified in the contract. To purchase these debt obligations, clients pay an insurance premium. The difference between the receipts of insurance premiums and the payment of claims by the insurer (if, of course, such things happen), as well as the administrative costs of the company, is the profit of the UK.
- Pension funds collect cash contributions from clients for a certain period of time, forming and accumulating working capital. Upon reaching retirement age, the client is en titled to a monthly payment of benefits from the accumulated savings. In this case, the respondent opens a personal savings account, which only reflects the amount of contributions, but does not give the right to use them in full. The amount of remuneration is calculated on the basis of a generally accepted formula and has time limits. Pension funds can function both as Russian public sector financial institutions and as private commercial companies.
- Pawnshops work in the field of personal finance and issue smallconsumer loans. The loan is issued on the security of only jewelry and valuable material things, which, in case of non-repayment of the debt, are seized and sold at auctions. Until the expiration of the loan, the pawnshop does not have the right to dispose of the pledged property, while the organization is obliged to ensure the safety of things. Income in this case is not only the proceeds from the sold jewelry, but also from the interest on the loan, that is, the client must return not only the loan amount, but also a fixed percentage.
Investment institutions
An investment financial institution is an institution that specializes in attracting investments from respondents (investors). The object of investment are securities (shares, bonds, bills). Their cost may vary depending on the current market situation. Varieties of this group of organizations:
- Brokers and dealers - intermediaries in transactions of purchase and sale of securities, operating on the basis of a license.
- Investment companies - form a kind of community whose members trust the company to manage their investments. Such an alliance through investment portfolios allows you to reduce the risks of individual investors to nothing.
- An investment fund - an intermediary between a lender and a borrower, differs from ordinary brokers in that it issues its own debt obligations mobilized into objects subject to privatization of other companies. Income from the sale of your securitiesthe fund directs to purchase bonds of other organizations. The difference between the sale and purchase of these securities is the income of the fund, and the resulting profit at the end of the reporting year in the form of dividends is distributed among its members.
- The stock exchange is a securities market, which, in fact, issues them and provides conditions for transactions with shares, bills.
Credit unions
Credit cooperatives are among the non-bank credit organizations, but due to the fact that such an organization does not pursue profit, it can be attributed to a separate group. The principle of operation of the union is based on the financial mutual assistance of member-participants.
A variety of credit unions are mutual funds, which can be founded by a group of individuals and legal entities on one common basis, such as territorial. Credit unions, like commercial banks, issue loans at interest and accept deposits in the form of deposits. The only difference is that these services are available only to members of the cooperative, and the percentage of loans issued is distributed among the participants in proportion to their contributions.
Need to create MFIs
The Great Depression that took place in the 30s of the last century, the collapse of the European regional market due to the Second World War, the refusal of most countries from the gold standard, numerous regional and world crises in the post-war period served as prerequisitescreation of a unified centralized system for regulating foreign exchange relations.
Thus, in 1944, as a result of negotiations in which 29 countries participated, it was decided to create a new monetary system - the International Monetary Fund (IFO). The International Bank for Reconstruction and Development (IBRD) was established as an executive body.
Major financial institutions of the world
Of course, IFIs and IBRD are not enough for the functioning of global monetary and financial relations. The effectiveness of international economic relations is ensured by the following institutions:
- International Development Association (IDA), which provides loans to developing countries on favorable terms.
- International Finance Corporation - supports the private sector of states.
- International Investment Guarantee Agency - regulates investment flows in developing countries.
- Bank for International Settlements - conducts international financial and currency transactions between central banks of different states.
Along with global international financial institutions, there are also regional ones:
- European Bank for Reconstruction and Development - attracts investments in the European economic region, and also carries out lending activities.
- European Financial Society - carries out banking activities in the European region.
- European Investment Bank.
- Asian Development Bank -provides soft loans to Asian countries.
- African Development Bank.
- Inter-American Development Bank.
- Arab League - ensures effective economic relations between Arab countries.
CV
Just as demand generates supply in the consumer market, the existence of monetary and economic relations gives rise to the emergence of financial institutions, the forms of which differ depending on the specifics of their functioning. Some of them work exclusively in the field of lending to individuals, while others provide services to legal entities and government agencies. At the same time, state-owned financial institutions accountable to the government operate in close relationship with commercial credit enterprises.
