Chapter 13 Financial Services PDF

Chapter 13 Financial Services FINANCIAL INSTITUTIONS: Commercial Bank – Company that accepts deposits, make loans, earn profits, pay interest to depositors, and pay dividends to owners. o CIMB, Maybank, Public Bank. Savings and Loan Association (S&L) – Financial institut...

Chapter 13 Financial Services FINANCIAL INSTITUTIONS: Commercial Bank – Company that accepts deposits, make loans, earn profits, pay interest to depositors, and pay dividends to owners. o CIMB, Maybank, Public Bank. Savings and Loan Association (S&L) – Financial institution accepting deposits and making loans primarily for home mortgages. o Also called thrift institutions that established decades ago to promote the idea of savings among the general population. Mutual Savings Bank – Financial institution whose depositors are owners sharing in its profit. o All profits are divided proportionately among depositors, who receive dividends. o About 600 U.S. mutual savings banks attract most of their funds in the form of savings deposits, and funds are loaned out in the form of mortgages. Credit Union – Nonprofit, cooperative financial institution owned and run by its members, usually employees of a particular organisation. o To promote thrift, careful management of one’s money or resources. o To provide members with a safe place to save and borrow at reasonable rates. NONDEPOSIT INSTITUTIONS: Pension Fund – Nondeposit pool of funds managed to provide retirement income for its members. o Public pension funds for state and local governments employees. o Private pension funds are operated by employers, unions, and other private groups. o Employees Provident Fund (EPF). Insurance Company – Nondeposit institution that invests fund collected as premiums charged for insurance coverage. o Accumulate money from premiums charged for coverage. o Invest funds in stocks, real estate, and other assets. o Earnings pay for insured losses, such as death benefits, automobile damage, and healthcare expenses. o MSIG, Prudential, AIA. Finance Company – Nondeposit institution that specialises in making loans to businesses and consumers. o Commercial finance companies lend to businesses needing capital or long-term funds. o Consumer finance companies devote most of their resources to providing small noncommercial loans to individual. o HFC Beneficial offers mortgage refinancing and personal loans. Securities Investment Dealer (Broker) – Financial institution that buys and sells stocks and bonds both for investors and for its own accounts. o Invest in securities by buying stocks and bonds for their own accounts in hopes of reselling them later at a profit. o Hold large sums of money for transfer between buyers and sellers. o RHB Securities, Maybank Securities, CIMB Securities, Merrill Lynch, A.G. Edwards Inc. 1 RAYMOND CHIENG  Chapter 13 Financial Services GROWTH OF FINANCIAL SERVICES: Individual Retirement Account (IRA) – Tax-deferred pension funds that wage earners and their spouses can set up to supplement other retirement funds. Trust Services – Management by a bank of an estate, investments, or other assets on behalf of an individual. o Trust department will make your monthly bill payments and managing your investment portfolio as a remuneration. o Trust department also manage the estates of deceased persons. Private Retirement Scheme (PRS) – Voluntary long-term savings and investment scheme designed to help in saving more for retirement. o Tax Incentive – Enjoy personal tax relief of up to RM 3,000 per year. o Sub Account A (70%) – Can only be withdrawn upon reaching retirement age, upon death and permanent departure from Malaysia. o Sub Account B (30%) – Can be withdrawn once a year. INTERNATIONAL SERVICES: Letter of Credit – Bank promise, issued for a buyer, to pay a designated firm a certain amount of money if specified conditions are met. Banker’s Acceptance - Bank promise, issued for a buyer, to pay a designated firm a certain amount of money at a future date. ELECTRONIC FUNDS TRANSFER: Electronic Funds Transfer (EFT) – Communication of fund-transfer information over wire, cable, or microwave. o Provides for payment and collections by transferring financial information electronically. o PayPal offers online payments and money transfers among businesses and individuals nationally and internationally, in various currencies, requiring only that recipients have an e-mail address. Automated Teller Machine (ATM) – Electronic machine that allows bank customers to conduct account-related activities 24/7. o Allow customers to withdraw money, make deposits, transfer funds between accounts, and access information on their accounts. 2 RAYMOND CHIENG  Chapter 13 Financial Services REGULATION OF THE BANKING SYSTEM: Federal Deposit Insurance Corporation (FDIC) – Federal agency that guarantees the safety of deposits up to $250,000 in the financial institution that it insures. o Created by President Franklin D. Roosevelt to restore public confidence in banks during the Depression era. o Commercial banks pay fees for membership in the FDIC. o Preserve confidence by supervising banks and insuring deposits in banks and thrift institutions o Maintains the right to examine the activities and accounts of all member banks. Perbadanan Insurans Deposit Malaysia (PIDM) o All commercial banks licensed under the Financial Services Act (FSA) 2013. o All Islamic banks licensed under the Islamic Financial Services Act (IFSA) 2013, including locally incorporated subsidiaries of foreign banks operating in Malaysia. Federal Reserve System (Fed) – The nation’s central bank, established by Congress in 1913. o Perched atop the U.S. financial system and regulating many aspects of its operation. INTERNATIONAL BANK STRUCTURE: World Bank – The International Bank for Reconstruction and Development. o UN agency that provides a limited scope of financial services, such as funding improvements in underdeveloped countries. International Monetary Fund (IMF) – A group of some 150 nations that have combined resources. o Promote stable exchange rates to encourage member countries to continue buying products from other countries. o Provide temporary short-term loans to nations suffering from temporary negative trade balances. 3 RAYMOND CHIENG