CONTENT

EXECUTIVE SUMMARY____________________________________________________________
FINANCE________________________________________________________________________
FINANCIAL
SYSTEM_____________________________________________________________________
DEPOSITORY INSTITUTION_____________________________________________________________
COMMERCIAL BANKS____________________________________________________________________
SAVING AND LOAN ASSOCIATION_______________________________________________________
SAVING BANKS______________________________________________________________________

CREDIT UNION______________________________________________________________________

NON DEPOSITORY INSTITUTION---------------------------------------------------------------------CONTRACTUAL SAVING ORGANIZATION____________________________________________

INSURANCE COMPANIES____________________________________________________________
PENSION FUNDS__________________________________________________________________
SECURITIES FIRMS________________________________________________________________
INVESTMENT COMPANIES (MUTUAL
FUNDS)__________________________________________
INVESTMENT BANKING FIRMS_______________________________________________________
BROKERAGE FIRMS_______________________________________________________________
FINANCE FIRMS__________________________________________________________________
FINANCE COMPANIES_______________________________________________________________
MORTGAGE BANKING FIRMS___________________________________________________

1. FINANCE:
Finance deals with matters related to money and the markets. ; In our simple understanding it is
perceived as equivalent to 'Money'. But finance exactly is not money; it is the source of
providing funds for a particular activity. Thus finance does not mean the money with the
Government, but it refers to sources of raising revenue for the activities and functions of a
Government.
Financial system:

The term System in terms of financial system implies a set of complex & closely
connected institution, agent, practices, markets, claims, transaction, liabilities in the

economy.
Financial System is a set of complex & closely connected with financial institution,

financial Markets, financial instrument, & financial services etc.

The financial system is the process by which money flows from savers to users.

2. FINANCIAL INSTITUTION:
Organizations that obtain money from deposits and earn money from loans. Financial
intermediaries hold a very important role in the flow of money in the financial world. The
assistance of a financial intermediary is needed by companies who want somebody to act as a
middle man in raising money from the investors. Meeting up between these two parties are often
very difficult without the help of financial intermediaries

Any institution that collects money and puts it into assets such as stocks, bonds, bank deposits, or
loans is considered a financial institution.
Benefit:
Financial institutions provide products like checking and other accounts that help consumers
manage money.
They provide services and advice to help consumers meet their financial goals.
Financial institutions can provide a safe place for individuals to hold money, and they help
channel money from savers to borrowers.
There are two types of financial institutions:
A. Depository institutions
B. No depository institutions
Depository institutions:
Such as banks and credit unions, pay interest on deposits and use the deposits to make loans.
Non Depository institutions:
Such as insurance companies, brokerage firms, and mutual fund companies, sell financial
products.
Many financial institutions provide both depository and no depository services
Why do they exist?
Financial Intermediaries exist to spread the risk of financial investments over a broad group of
individuals and investments.
This process is known as Diversification.
Financial Intermediaries also act to provide liquidity to contributors for their investments and to
provide information and guidance to the investors.
Information is often given in the form of a Prospectus , a document detailing potential
investments, risks, and returns.

3. DEPOSITORY INSTITUTIONS:
The depository types of financial institutions include banks, credit unions, saving and loan
associations and mutual saving banks, Commercial banks
A. Commercial Banks

Commercial Banks are banking institutions that accept deposits and grant short-term loans and
Advances to their customers.
In addition to giving short-term loans, commercial banks also give Medium-term and long-term
loan to business enterprises. Now-a-days some of the commercial Banks are also providing
housing loan on a long-term basis to individuals. The largest and oldest of all financial
institutions, relying mainly on checking and savings accounts as sources of funds for loans to
businesses and individuals
Commercial banks accept deposits and provide security and convenience to their customers. Part
of the original purpose of banks was to offer customers safe keeping for their money. By keeping
physical cash at home or in a wallet, there are risks of loss due to theft and accidents, not to
mention the loss of possible income from interest. With banks, consumers no longer need to keep
large amounts of currency on hand; transactions can be handled with checks, debit cards or credit
cards, instead. Commercial banks are the largest banks, both in assets and in geographic extent.
Commercial banks also make loans that individuals and businesses use to buy goods or expand
business operations, which in turn lead to more deposited funds that make their way to banks. If
banks can lend money at a higher interest rate than they have to pay for funds and operating
costs, they make money.
A commercial bank is one that works with businesses. However, most banks today offer their
products and services to both consumers and businesses and are commonly referred to as
commercial banks. Commercial banks provide basic banking services to the general public,
including:
Checking and savings accounts
Certificates of Deposit
Safe deposit boxes
Loans including Mortgages
Credit cards
Other related products
There are approximately 7,000 commercial banks in the U.S. Some commercial banks, often
called regional and super-regional banks, cover a much wider geographic area and usually have
assets in the hundreds of billions of dollars. They have many branches that extend into several
states and many ATM machines at convenient locations throughout their area

i.

National Banks These are the larger banks that have branches and interests across the
country. Their business models are complex. The largest ones have become known as
The Big Banks. Among the 5 largest banks in the U.S. are Bank of America and Wells
Fargo.
Regional Banks: Although the definition of a regional bank varies, it is generally one

ii.

that operates in one region of the country, such as a state or within a group of states and is
concerned with the regional economy. Well known regional banks in Southern Virginia
include First Citizens and Carter Bank & Trust.
Community Banks: Community banks are typically locally owned and operated. They

iii.

tend to focus on the needs of the businesses and families where the bank has branches.
Lending decisions are made by people who understand the local needs of the families,
businesses and - because many serve smaller, rural communities - farmers. Employees
usually reside within or near the communities they serve. Benchmark is a good example
iv.

of a community bank.
Internet Banks: Some banks these days do not have physical locations. They serve
customers strictly in the virtual world. Everything, including opening accounts, is done

online at these banks

B. Savings & Loan Associations
A financial institution designed to collect savings and use that capital to make loans.
Savings and loans primary purpose is to take in deposits from households and to lend funds for
home and consumer loans. Savings banks were created with the specific purpose of promoting
savings mobilization particularly for low-income groups in both urban and rural areas. Savings
and loan associations (S&L) are financial institutions that previously only made mortgage loans
and paid dividends on depositors savings. Today savings and loan associations offer most of the
services commercial banks do. They may be state or federally chartered. There are two types of
savings and loans.
Mutual savings and loan associations are owned by and operated for the benefit of their
depositors. These depositors receive dividends on their savings.
Stock savings and loan associations are owned by stockholders. Like commercial banks, these
companies operate for profit.
C. Saving Banks

A savings bank is a financial institution whose primary purpose is accepting savings deposits. It
may also perform some other functions. They originated in Europe during the 18th century with
the aim of providing access to savings products to all levels in the population.
D. Credit Unions
The credit unions are the co-operative financial institutions that are owned by the members of the
union. The major difference between the credit unions and banks is that the credit unions are
owned by the members unlike banks.
The policies of credit unions are governed by a volunteer Board of Directors that is elected by
and from the membership itself. This board of directors also decides on the interest rates to be
charged. According to the regulation of credit unions, only the members of the credit union are
eligible to deposit money in the union or borrow money from the union. The credit unions are
always committed and dedicated to the members and ensure to improve the financial status of the
members. Since credit unions are not-for-profit organizations, they pay no federal income taxes.
Members often run them, and operating costs may be relatively low. For these reasons,
successful credit unions can lend funds to members at slightly lower rates than other financial
institutions. They may also pay slightly higher interest rates on savings. Today, larger credit
unions are run by professional management. They offer most of the services banks and other
financial institutions provide. Credit unions may be either federally or state chartered. The
National Credit Union Administration (NCUA) grants federal charters and supervises credit
unions across the country. NCUA also insures deposits in all federally chartered and many state
chartered credit unions.
National person credit union: Provide services to qualified members of the general public.
Corporate credit union: Provides services to national person credit unions

4. NON DEPOSITORY INSTITUTION:

Non depository institution includes Contractual saving organization and security firms
A. Contractual Saving Organization
a) Insurance Companies
Insurance companies pool risk by collecting premiums from a large group of people who want to
protect themselves and/or their loved ones against a particular loss, such as a fire, car accident,

illness, lawsuit, disability or death. Insurance helps individuals and companies manage risk and
preserve wealth. By insuring a large number of people, insurance companies can operate
profitably and at the same time pay for claims that may arise. Insurance companies use statistical
analysis to project what their actual losses will be within a given class. They know that not all
insured individuals will suffer losses at the same time or at all.
There are 2 major types of insurance: property and casualty insurance and life insurance. How
the premiums are invested depends on what type of insurance the company offers, which
determines the amount of liquidity it needs.
i.

Property and Casualty Insurance

Property and casualty insurance offers financial protection against damage or loss to property or
people caused by accidents, natural disasters, or from the action of others. The most common
type of this insurance is auto insurance, since it is legally required by every driver in every state.
ii.

Life Insurance

Insurance that pays out a sum of money either on the death of the insured person or after a set
period. Typically, life insurance is chosen based on the needs and goals of the owner. Term life
insurance generally provides protection for a set period of time, while permanent insurance, such
as whole and universal life, provides lifetime coverage.
For e.g.:

East West Life Assurance Company: East West Life is an important player for
Pakistan's health and life insurance companies and offers a full range of insurance

products, including:
General Insurance
Life Insurance
New Jubilee Life

New jubilee life insurance Company is a best PVT insurance company in Pakistan. New jubilee
was a subsidiary of the Aga Khan Fund for Economic Development

State Life Insurance Corporation

State Life offers a very complete range of products and a wide range of clients, ranging from an
average man in the street, and the wealthiest individuals.
One of the unique plans to offer their insureds when the insured pays only 5 premium and get
huge amounts of 4 to 5 times the sum insured.

Our services would be beneficial for you and your family and plan design to your needs, giving
you peace of mind and total financial freedom.
b) Pension/Provident Funds
Pension is a scheme in which you are investing for your FUTURE.
Pension funds are financial institutions which accept saving to provide pension and other kinds
of retirement benefits to the employees of government units and other corporations. Pension
funds are basically funded by corporation and government units for their employees, which make
a periodic deposit to the pension fund and the fund provides benefits to associated employees on
the retirement. The pension funds basically invest in stocks, bonds and other type of long-term
securities including real estate.
Types of Pensions
The pension fund industry comprises two distinct sectors.
i.

Private pension funds: are those funds administered by a private corporation e.g.
(insurance company, mutual fund). Any pension plan set up by employers, groups, or
individual
Public pension funds: are those funds administered by a federal, state, or local

ii.

government (e.g., Social Security).Any pension plan set up by a government body for the
general public.

B. Securities firms
Securities firms are companies that provide institutional support for the buying and selling of
securities. Investment companies, brokerages, and investment banks are the major types of
securities firms.
a) Investment companies:
Generally, an investment company is a company (corporation, business trust, partnership, or
Limited Liability Company) that issues securities and is primarily engaged in the business of
investing in securities. An investment company invests the money it receives from investors on a
collective basis, and each investor shares in the profits and losses in proportion to the investors
interest in the investment company. Or
Investment Companies

An investment company is a corporation or a trust through which individuals invest in

diversified, professionally managed portfolios of securities by pooling their funds with those of
other investors. Rather than purchasing combinations of individual stocks and bonds for a
portfolio, an investor can purchase securities indirectly through a package product like a mutual
fund.. Investment companies pool the investments of many people into a single portfolio that is
managed by professional managers. Investment companies, such as mutual funds, provide
expertise and economies of scale that small individual investors would not be able to afford
otherwise

Closed-end funds: An investment company with a fixed number of shares that are
bought and sold only in the open stock market. Once issued, they can be bought and sold
at the market rates in secondary market (Stock Exchange). The market rate is announced

daily by the stock exchange.

Open-end fund: An investment company that stands ready to buy and sell shares at any
time.
Mutual funds

i.

Mutual funds are basically a large public portfolio that accepts funds from members and then use
these funds to buy common stocks, preferred stocks, bonds and other short-term debt instruments
issued by government and corporation. A mutual fund pools the funds of many people and
managers invest the money in a diversified portfolio of securities to achieve some stated
objective. Open-end investment companies, also known as mutual funds, continuously issue new
shares. These shares may only be purchased from the investment company and sold back to the
investment company.
b) Investment Banks - Unlike commercial banks, investment banks do not take deposits.
Their focus is assisting individuals, corporations, and governments in raising capital by
underwriting and/or acting as the client's agent in the issuance of securities. Sell and
distribute new stocks and bonds directly from issuing corporations to original purchasers.
Investment banks help businesses and other organizations to sell their own stocks and
bonds to the investing public. Investment banks offer advice to the issuer, register the
securities with the Securities and Exchange Commission, and sell the securities to their
customers
Sell and distribute new stocks and bonds directly from issuing corporations to original
purchasers

League Tables rank investment banks by the volume of securities they underwrite
Underwriting is typically conducted through a syndicate which includes many investment banks
and brokerage firms
c) Brokerage Firms
Firms that buy and sell stocks, bonds, and other securities for their customers and provide other
financial services. Brokerages
A brokerage acts as an intermediary between buyers and sellers to facilitate securities
transactions. Brokerage companies are compensated via commission after the transaction has
been successfully completed. For example, when a trade order for a stock is carried out, an
individual often pays a transaction fee for the brokerage company's efforts to execute the trade.
A brokerage can be either full service or discount. A full service brokerage provides investment
advice, portfolio management and trade execution. In exchange for this high level of service,
customers pay significant commissions on each trade. Discount brokers allow investors to
perform their own investment research and make their own decisions. The brokerage still
executes the investor's trades, but since it doesn't provide the other services of a full-service
brokerage, its trade commissions are much smaller.
Often simply called a brokerage, this is a financial
institution that facilitates the buying and selling of securities between
investors. They serve a clientele that trades public stocks and other
securities. The firm's agents, commonly called stockbrokers, research the
markets to provide appropriate recommendations
A business that derives its prime source of income from acting as an intermediary for buyers and
sellers in a financial, commodity or currency market. A brokerage firm makes its money by
charging customers a commission to buy or sell for them. In the forex market, a brokerage firm
generally makes their commission on the bid/offer spread in currency pairs.
5. FINANCE FIRM:
Provide loans directly to consumers and businesses, as well as help borrowers obtain mortgage
loans on real property.
A. Finance Companies
Finance companies are the financial institutions that engage in satisfying individual credit needs,
and perform merchant banking functions. In other words, finance companies are non-bank

financial institutions that tend to meet various kinds of consumer credit needs. They involve in
leasing, project financing, housing and other kind of real estate financing.
Finance companies provide loans to people or businesses using the issuance of short-term
securities, especially commercial paper, as a source of funds. Consumer finance companies
provide consumer loans and sometimes mortgages. They also provide the instant credit offered
by so many retail stores, where the customer receives the item but doesn't have to pay for a
stipulated amount of time.
B. Mortgage Companies: These are companies engaged in the business of originating
and/or funding mortgages for residential or commercial property. A mortgage company is
often just the originator of a mortgage; they typically have access a network of lending
institutions that provide the capital for the mortgage itself.