The financial system of any country has a key element - financial institutions. These are institutions that deal with the transfer of money, lending, investing, borrowing money, using various financial instruments for this.
Targets and goals
The main task of a financial institution is to organize the effective transfer of funds from savers to borrowers. That is, all operations are carried out between those who have money and those who need them. The objectives of financial institutions are as follows:
- save financial resources;
- to mediate with borrowers;
- make financial transformations;
- risk transfer;
- organize foreign exchange transactions;
- promote liquidity;
- organize operations to change the legal form of companies.
Consider each goal in more detail.
What is the benefit?
Financial institutions are organizations whose task is to accumulate cash, which will subsequently be rationally used. Such a method of accumulating funds is more profitable and safe.
Mediation is the main function of financial institutions, as it is important not only the accumulation of funds, but also their rational use in the future. It turns out that financial institutions are intermediaries between the saver and the borrower, the latter taking funds for certain obligations related to the return of the money received. Financial intermediation has a number of advantages:
- Not all savers can deal with financial transactions themselves and make a really profitable decision.
- Turning to financial companies, the consumer saves his time, effort, nerves and can be engaged in the main business.
- Received funds work more efficiently.
- Thanks to financial intermediaries, it is possible to accumulate large amounts of money that are invested in profitable projects that are potentially interesting to large investors.
The main thing is cleanliness of operations
Financial institutions are an opportunity to make short-term monetary assets long-term. In this case, several points play an important role:
- Settlements with short-term investors should be carried out carefully so that all funds taken are returned on time;
- when there are too many investors, there is a leveling out of fluctuations in the amount of cash.
Contacting such organizations is beneficial for the reason that any financial transactions are risky in nature, and therefore everyone wants to avoid risks and make the right decision.
Currency operations
The activities of financial institutions are also aimed at conducting foreign exchange transactions, in which many companies are involved, especially those that plan to enter the international market. Foreign exchange operations are of interest to joint ventures that help find foreign investors or open a foreign representative office.
Any company operating in the financial market applies to the relevant institutions for funds. And an important role in this process is played by the creation of an insurance stock of funds that can be used in difficult situations, with accounts payable, for example. In order to insure themselves against such problems, financial institutions whose role is high are needed.
Types and Features
There are several types of financial institutions:
- commercial banks;
- non-bank financial institutions;
- investment institutions.
All types of financial institutions conduct their activities with an emphasis on accumulating free cash and subsequently investing it in the country's economy. But, on the other hand, each financial institution works in its own way.
Banks
The main investment potential is concentrated in the institutions of the banking system, the possibilities of which are exceptional. It is in banks that financial resources are accumulated , which are subsequently distributed to those sectors and industries that are developing most dynamically. The modern banking system is based on commercial banks that conduct operations in various areas of the financial market. But with the specialization of banking services as the main financial institutions, investment banks have become popular, which focus on the mobilization of long-term capital and the provision of funds through the issuance and placement of shares, securities, as well as long-term lending.
All investment banks are divided into two types - the first provide services in the field of trade and placement of securities, the second focus on the issuance of loans (long-term and medium-term). The first type of banks is popular in England, Canada, USA, Australia, and they can not accept deposits of the population, organizations. The second type of investment banks is common in Western Europe. They are engaged in lending to various sectors of the economy, implementation of projects of various kinds.
Equally common are financial institutions such as mortgage banks. Their task is to carry out credit operations related to the attraction and placement of funds on a long-term basis on the security of land and buildings. As resources of mortgage banks, funds are used that are raised as a result of the issuance of bonds, mortgage bonds.
Non-banking organizations
Non-bank financial institutions are pawnshops, credit partnerships, credit unions, pension funds and insurance companies. We describe the features of each species in a few words:
- Pawnshops issue loans secured by movable property; they may be state, communal, private or mixed. Pawnshops work without a loan agreement with a client and without collateral.
- Credit partnerships are designed for credit and settlement services of their members, and funds received upon purchase of shares and payment of compulsory insurance contributions are considered to be capital.
- Credit unions are special cooperatives that are collected by individuals. They can engage in attracting deposits, providing loans for the provision of audit and consulting services.
- Insurance companies implement insurance policies, and the funds received for this are placed in government or corporate securities.
- Private pension funds are independent companies whose resources are regular contributions from employees and deductions from firms.
Investment financial institutions that operate in the securities market without other activities are allocated as a separate group.
Challenges and Prospects
The financial system is the basis of economic development in any country. They not only make it possible to judge the investment climate of a particular state, but also make it possible to shape it and thereby be responsible for its quality. Today, a need has ripened in the formation of effective methods of financing enterprises. But because of the financial crisis in Russia, confidence in financial institutions is not so high, and the banking system itself is not very technological. The modern development of financial institutions has certain prospects if the economy grows, but for this it is necessary to develop and modernize fixed assets, attracting investments.