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WEEK 3

FINANCIAL INSTITUTIONS

Content:

• Definition of financial institution, bank and types
• Meaning and segments of financial systems
• Money and capital markets
• Benefits of capital market.

Sub-topic 1: MEANING OF FINANCIAL INSTITUTION

Financial institution refers to all business organisations which hold money for individuals and institutions and may borrow money from them in order to give loans or make other investments.

TYPES OF FINANCIAL INSTITUTIONS

Financial institutions may be divided into two major groups- banking and non-banking financial institutions. The major difference between the banking and the non-banking financial institutions is that the liabilities of the banking institutions are counted as part of the total supply of money while those of the non-banking institutions are excluded from the money supply.

Banking financial institutions include:

1. Central bank
2. Commercial banks
3. Merchant banks
4. Development banks
5. Saving banks
6. Mortgage bank

Non-banking financial institutions include:

1. Traditional financial institution
2. Insurance companies
3. Hire purchase companies
4. Building societies

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