Financial Institutions

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Financial InstitutionsBanking & FinanceBellringerBefore you begin this chapter, see what you already know about banking by taking the chapter pretest. www.m.g-wlearning.comChapter 2, Financial Institutions

OBJECTIVESDescribe the various types of depository institutions.Discuss types of deposit insuranceWhat is a Financial Institution?Businesses that offer financial services

Depository InstitutionsBanksCredit unionsSavings associationsDeposit: money placed in an accountDepositors: customers who make depositsBanksresponsible for most of the money circulating in the countryExamples: commercial banks, savings associations, and credit unionsWord Study: STOCKHOLDERSTOCKHOLDERPictorial RepresentationTextbook DefinitionReal-World ConnectionContextual ParagraphTransfer FundsTransaction account: allows owner to use it to pay a third partyExample: Checking accounts (most common)Online bill paymentDebit cardAccess to ATMUsed for day-to-day financial needsAccept DepositsSavings accounts: provide a safe place to store your moneyNo check writing privilegesBanks pay interest on savings accts.Example: Money market accountsPays more interest than average savings acct.Require larger initial deposit and minimum balance ($500)Commercial BanksOwned by investors (stockholders)

Make LoansMake more loans than other depository institutionsConsumers get banks to finance cars, houses, and higher educationOther ServicesRental of safe deposit boxesSelling of securities and insuranceTrust departments manage money and other assets

Commercial BanksOwned by investors (stockholders)

Savings and Loans Associations (S & Ls)aka savings associationsOriginally organized to help people save moneyOperate for profitTypically owned by stockers, ORSingle person, group of people, or corporationAnd now,a commercial break!Credit UnionsOwned by their members (Who are they? Hint: commercial)Cooperative (co-op): business/organization owned by its membersNot for profitmoney returned to the membersReturned money takes the form of higher interest rates on savings; lower interest rates on loansShare accounts = savings accountsShare draft accounts = checking accountsMembership criteria must be met to joinCredit UnionsCredit Union Membership TypeCharacteristicsEmployer-basedOpen to people working in a particular companyEx.: FedExOccupation-basedOpen to people who share a common occupationEx.: Navy Credit UnionGeography-basedOpen to anyone living, working, or even volunteering or worshipping in specific geographic location.Ex.: Orion Federal Credit UnionFDICyou know what it is, but heres more!FDIC and NCUA (National Credit Union Administration) are virtually identical

Eligible for FDIC Insurance ProtectionNot Eligible for FDIC Insurance ProtectionChecking accountsSavings accountsMoney market accountsCertificates of depositIRAs401(k)sMutual fundsStocksBondsAnnuitiesLife insuranceContents of safe deposit boxesGo to your 1 oclock 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.Closure3 Things You Found Out2 Interesting Things1 Question You Still Have

TURN THIS IN ON YOUR WAY OUTNon-Depository InstitutionsBellringer:Place a dollar sign ($) in the column for which each characteristic applies.CharacteristicCommercial BanksSavings AssociationsCredit UnionsFor ProfitNot-for-ProfitOwned by Stockers or PrivatelyOwned by MembersTransfers FundsAccepts DepositsMakes LoansObjectivesDefine 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.Non-depository InstitutionsDo not accept depositsMany make loansAccept money from customers to invest in business dealsSpreads the risk and provides a way for customers to investInstitutionsInvestment banksSecurities firmsFinance companiesInsurance companiesInvestment BanksProvide services for businessesHelp them raise capital (money)Common way to raise capital is to issue securitiesSecurities: financial instruments that pay interest or give investor part ownership of the companyOne of main activities of investment banksInvestment BanksHelp organizations issue bonds and find investors to buy themHighly regulatedBonds: debt issued by govt or companyBuying 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 companySecurities Firms(brokerage firms, stockbrokers, bondbrokers)Involved in trading of securities in financial marketsCreate and manage fundsExecute transactions for customersBroker places order and charges a fee (commission)Full-service brokerage firms advise on which securities to buyHelp customers manage their investmentsDiscount brokers place orders, tooLimited services, lower feesMany are onlineexample: E-Trade, Sharebuilder

Finance Companies (loan companies)Make profits by issuing loans to individuals and businessesMost are privately ownedConsumer finance companies provide personal loans to individuals (with poor credit, higher interest rate)Example: payday lenders (EXPENSIVErates can be 300% or higher) provide short-term loans until next paydayBusiness finance companies provide loans for businessesExample: Value City (WFNNB)Captive finance company provides loans so the manufacturer can easily sell its own goodsExample: GM (General Motors)

Insurance CompaniesFor-profit businesses that primarily sell insuranceInsurance protects from loss2 ways insurance companies generate revenue:Selling insurance policiesSelling investment productsConsumer buys policy by making periodic payments (premiums)Contract = policyPerson or thing covered by policy = insuredAlso sell annuities, whole life insurance, and mutual fundsEarn income from fees charged to create and manage these productsActivity: Station-to-Station ReviewThere are 5 stations, each with 1 questionWhen 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 repeatStation 1What are four types of non-depository financial institutions?Station 2How do investment banks help companies raise capital?Station 3How do stockbrokers make their money?Station 4What is the primary business of insurance companies?Station 5What are the two ways insurance companies earn income?Chapter 2 Vocabulary Matching Activitywww.m.g-learning.com

Partner with your 2 oclock 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.Checking accountDepositDividendEquityMoney market accountPremiumSavings accountSecuritiesShare accountShare draft accountActivity: Word Splash