In a word finance is the management of large amounts of money, especially by governments or large companies.
In a more specific definition, Finance is a broad term that describes activities associated with banking, debt, credit, capital markets, money, and investments. Basically, finance represents money management and the process of acquiring needed funds.
The finance field includes three main subcategories:
1. personal finance
2. corporate finance
3. public (government) finance
Now that a brief introduction of finance has been presented, we can define financial institutes.
What Is a Financial Institution (FI)?
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 can vary by size, scope, and geography. the most common types of financial institutions (FI) are commercial banks, investment banks, insurance companies, and brokerage firms. there are three major types of financial
1. Depository institutions – deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies;
2. Contractual institutions – insurance companies and pension funds
3. Investment institutions – investment banks, underwriters, and other different types of financial entities managing investments
financial institution is responsible for the supply of money to the market through the transfer of funds from investors to the companies in the form of loans, deposits, and investments.
The role of financial institutes in economy:
financial operations are a critical part of any economy, with individuals and companies relying on financial institutions for transactions and investing. The primary role of financial institutions is to provide liquidity to the economy and permit a higher level of economic activity than would otherwise be possible. Governments consider it imperative to oversee and regulate banks and financial institutions because they do play such an integral part of the economy. They are regulated by a central government organization for banking and non-banking financial institutions.
Following are the list of roles performed by Financial Institutions:
1. Regulation of Monetary Supply
2. Banking Services
3. Insurance Services
4. Capital Formation
5. Investment Advice
6. Brokerage services
7. Pension Fund Services
8. Trust Fund Services
9. Financing the Small and Medium Scale Enterprises
10. Act as A Government Agent for Economic Growth
Financial institutions are the backbone of the economy. Without the help of these institutions, the economy will go down and will not be able to stand up. people wouldn’t be able to take advantage of rising and falling interest rates and there would be no saving of money, other than the stacks you stuff under your mattress.
Due to their pivotal role in the development and growth of the economy, the government regulates these institutions through the central bank, insurance regulators, pension fund regulators, and so on. Over the years, their role has expanded from accepting and lending funds to larger areas of services.
written by the Legal Institute of tamadon kohan rey