Financial institutions are defined as companies that operate on both sides of the markets for financial capital. Financial institutions may be borrowers in one market and lenders in another market, and they are also willing to trade so that families who have money can spend it in institutions, and institutions lend it to other companies or people and benefit from the interest differences between... The two currencies. Financial institutions are diverse, but the main financial institutions are as follows:
- Commercial banks:
They are financial institutions that accept deposits and provide loans to businesses and households. This type of financial institution plays a central role in the monetary system by creating deposits. - Government sponsored mortgage lenders.
- Pension funds: Pension funds are financial institutions that use corporate and employee pension contributions to buy bonds and stocks. Some pension funds are very large.
- Insurance companies:
Insurance companies enable families and businesses to deal with risks such as accidents, theft, fire, and a host of other misfortunes. They collect premiums from their customers and pay claims. Insurance companies use the money they receive to buy bonds and stocks, earn revenue from them, and pay customers interest on their money. The difference between... Both are considered the insurance companies' profit.
These institutions may be exposed to bankruptcy and illiquidity if the net value of the financial institution is negative, which is the market value of what it lent, minus the market value of what it borrowed.
If the net value is positive, it means that the institution is able to fulfill its obligations. If the value is negative, it means that the institution is insolvent and unable to fulfill its obligations and must stop working.
Financial institutions borrow and lend both, so they are exposed to the risk of their net worth becoming negative. To reduce these risks, financial institutions are regulated, and the minimum amount of their lending must be supported by their net wealth at times. All countries support these institutions, as they have an effective role in the economy, therefore. Support it so that it does not run the risk of bankruptcy.
If you are looking for financing, you should go to these financial institutions.
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