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Questions and Answers
What is the primary characteristic that distinguishes a non-banking financial institution from a bank?
Which of the following financial services is NOT facilitated by a non-banking financial institution?
According to Alan Greenspan, what role do non-banking financial institutions play in an economy?
What is the origin of the term 'non-bank' in the context of financial institutions?
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Why do developing countries tend to view the term 'bank' as deposit-taking institutions only?
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What is a key difference between non-bank financial institutions and banks?
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How do non-bank financial institutions enhance competition in the financial services industry?
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What is a common way for non-bank financial institutions to fund their operations?
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What type of accounts do non-bank financial companies typically offer?
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What has been observed in the growth of non-banking financial companies in recent years?
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Study Notes
Non-Banking Financial Institutions (NBFIs)
- NBFIs are financial institutions that do not have a full banking license and are not supervised by a national or international banking regulatory agency.
- They facilitate bank-related financial services such as investment, risk pooling, contractual savings, and market brokering.
Examples of NBFIs
- Hedge funds
- Insurance firms
- Pawn shops
- Cashier's check issuers
- Check cashing locations
- Payday lending
- Currency exchanges
- Microloan organizations
Role of NBFIs in the Economy
- NBFIs provide multiple alternatives to transform an economy's savings into capital investment.
- They act as backup facilities should the primary form of intermediation fail.
Origin of the Term "Non-Bank"
- The term "non-bank" likely originated from "non-deposit taking banking institution".
- Language differences and adoption of western banking systems may have led to the term "non-bank" being used differently in English and non-English speaking countries.
Operations of NBFIs
- NBFIs are not covered under a country's banking regulations.
- They supplement banks by providing infrastructure to allocate surplus resources to individuals and companies with deficits.
- NBFIs introduce competition in the provision of financial services.
Services Offered by NBFIs
- Loans and credit facilities
- Private education funding
- Retirement planning
- Trading in money markets
- Underwriting stocks and shares
- Wealth management
- Managing portfolios of stocks and shares
- Discounting services
- Advice on merger and acquisition activities
Funding of NBFIs
- NBFIs are not allowed to take deposits from the general public.
- They find other means of funding their operations, such as issuing debt instruments.
- They only take fixed deposit or time deposits, not current or saving accounts.
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Description
Test your knowledge of non-banking financial institutions, their roles, and services. Learn about NBFCs, their functions, and examples of such institutions.
