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Financial Institutions

Financial Institutions

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Financial Institutions

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  1. Financial Institutions Banking & Finance

  2. Bellringer • Before you begin this chapter, see what you already know about banking by taking the chapter pretest. • • Chapter 2, Financial Institutions

  3. OBJECTIVES • Describe the various types of depository institutions. • Discuss types of deposit insurance

  4. What is a Financial Institution? Businesses that offer financial services

  5. Depository Institutions • Banks • Credit unions • Savings associations • Deposit: money placed in an account • Depositors: customers who make deposits • Banks—responsible for most of the money circulating in the country • Examples: commercial banks, savings associations, and credit unions

  6. Word Study: STOCKHOLDER Pictorial Representation Textbook Definition STOCKHOLDER Real-World Connection Contextual Paragraph

  7. Commercial BanksOwned by investors (stockholders) Transfer Funds Accept Deposits Savings accounts: provide a safe place to store your money No check writing privileges Banks pay interest on savings accts. Example: Money market accounts Pays more interest than average savings acct. Require larger initial deposit and minimum balance ($500) • Transaction account: allows owner to use it to pay a third party • Example: Checking accounts (most common) • Online bill payment • Debit card • Access to ATM • Used for day-to-day financial needs

  8. Commercial BanksOwned by investors (stockholders) Make Loans Other Services Rental of safe deposit boxes Selling of securities and insurance Trust departments manage money and other assets • Make more loans than other depository institutions • Consumers get banks to finance cars, houses, and higher education

  9. Savings and Loans Associations (S & L’s) • aka savings associations • Originally organized to help people save money • Operate for profit • Typically owned by stockers, OR • Single person, group of people, or corporation

  10. And now, a commercial break!

  11. Credit Unions • Owned by their members (Who are they? Hint: commercial) • Cooperative (co-op): business/organization owned by its members • Notforprofit—money returned to the members • Returned money takes the form of higher interest rates on savings; lower interest rates on loans • Share accounts = savings accounts • Share draft accounts = checking accounts • Membership criteria must be met to join

  12. Credit Unions

  13. FDIC—you know what it is, but here’s more! • FDIC and NCUA (National Credit Union Administration) are virtually identical

  14. Go to your 1 o’clock buddy and discuss the following: • What do financial institutions do? • What are the three types of depository institutions? • Who owns commercial banks? • What was the original purpose of savings associations? • Why was the FDIC established? Justify, then agree or disagree as appropriate.

  15. Closure 3 Things You Found Out2 Interesting Things1 Question You Still Have TURN THIS IN ON YOUR WAY OUT

  16. Non-Depository Institutions

  17. Bellringer:Place a dollar sign ($) in the column for which each characteristic applies.

  18. Objectives • Define non-depository institutions. • Describe the role of investment banks in raising capital. • Explain the purpose of securities. • Describe the function of finance companies. • Explain how insurance companies provide risk-management and investment options to their clients.

  19. Non-depository Institutions • Do not accept deposits • Many make loans • Accept money from customers to invest in business deals • Spreads the risk and provides a way for customers to invest Institutions • Investment banks • Securities firms • Finance companies • Insurance companies

  20. Investment Banks • Provide services for businesses • Help them raise capital (money) • Common way to raise capital is to issue securities • Securities: financial instruments that pay interest or give investor part ownership of the company • One of main activities of investment banks

  21. Investment Banks • Help organizations issue bonds and find investors to buy them • Highly regulated • Bonds: debt issued by gov’t or company • Buying a bond means loaning money to the organization (heard of a municipal bond?) • Stock: gives the purchaser part ownership of the company (equity) • Stockholders receive dividends (payments) from issuing company

  22. Securities Firms(brokerage firms, stockbrokers, bondbrokers) • Involved in trading of securities in financial markets • Create and manage funds • Execute transactions for customers • Broker places order and charges a fee (commission) • Full-service brokerage firms advise on which securities to buy • Help customers manage their investments • Discount brokers place orders, too • Limited services, lower fees • Many are online—example: E-Trade, Sharebuilder

  23. Finance Companies (loan companies) • Make profits by issuing loans to individuals and businesses • Most are privately owned • Consumer finance companies provide personal loans to individuals (with poor credit, higher interest rate) • Example: payday lenders (EXPENSIVE—rates can be 300% or higher) provide short-term loans until next payday • Business finance companies provide loans for businesses • Example: Value City (WFNNB) • Captive finance company provides loans so the manufacturer can easily sell its own goods • Example: GM (General Motors)

  24. Insurance Companies • For-profit businesses that primarily sell insurance • Insurance protects from loss • 2 ways insurance companies generate revenue: • Selling insurance policies • Selling investment products • Consumer buys policy by making periodic payments (premiums) • Contract = policy • Person or thing covered by policy = insured • Also sell annuities, whole life insurance, and mutual funds • Earn income from fees charged to create and manage these products

  25. Activity: Station-to-Station Review • There are 5 stations, each with 1 question • When the music begins, write your response on the paper (not too big, others need space), and initial. Should you see any incorrect answers, use the red pen to correct. • When the song changes, change stations and repeat

  26. Station 1 What are four types of non-depository financial institutions?

  27. Station 2 How do investment banks help companies raise capital?

  28. Station 3 How do stockbrokers make their money?

  29. Station 4 What is the primary business of insurance companies?

  30. Station 5 What are the two ways insurance companies earn income?

  31. Chapter 2 Vocabulary Matching Activity •

  32. Partner with your 2 o’clock buddy to create a HEADLINE article using 5 of your vocabulary words in context. Be creative in determining “what happened” in the story you are reporting on. Each team will present their “story” to the class. Use Publisher or Word and print. Activity: Word Splash