A financial organization is ... Definition of a concept

Money in their various manifestations has always been and will be the basis of economic relations at the micro and macro levels. A financial institution is an active participant in the monetary system of a particular country or international financial market.

The concept of financial organizations

Money is also a subject of trade, whose sellers are credit institutions. A financial institution is an economic agent (most often a legal entity) operating in the financial market under a license and providing services for the issuance of loans, the sale of securities and other transactions related to the formation of cash flows.

Functions of financial companies

In essence, financial companies perform intermediary functions for the redistribution of funds. Their current assets are deposits accepted for a certain remuneration from the population and legal entities, which are then "sold" to other participants in credit relations as loans. Of course, this is a primitive model of the mechanism of the functioning of financial intermediaries, but its principle remains common, only the scale, form and participants of the transaction change. Thus, credit institutions perform the following functions:

• Participation in the formation and functioning of the market of cash and securities.
• Redistribution of monetary incomes in the form of savings of the population, that is, their transformation into investment funds.
• Advising participants in economic relations and financial management.
• Risk assessment and minimization.

Modern financial organizations, their types and functions

Some of the distinctive characteristics of participants in monetary relations, as well as the features of their services, allowed them to be classified into several groups. At the level of any modern state there may be the following forms of financial organizations:

1. Banks are intermediary organizations in the circulation of which highly liquid assets act: money (electronic, cash) and securities.
2. Non-bank credit organizations - indirectly participate in the redistribution of savings. Their sphere of activity is rather a highly specialized financial management of clients' incomes.
3. Investment companies - perform an assessment of economic risks and determine the most attractive areas of investment.
4. Credit unions - provide loan and savings services to community members. Differ from commercial companies in that they do not pursue the goal of making a profit

Banks, their features and types

A bank financial institution is an intermediary that helps to "sell" money or a product / service, provides consulting services in the field of cash investments. Thus, we can distinguish three types of banks:

1. A personal finance bank is a commercial institution that provides monetary loans to the population or economic agents for a fixed fee. Interest on loans granted to customers is the main income item of commercial banks. Expenses of these credit companies are interest on deposits (investments of customers). Deposits of depositors form the majority of the bank's working capital.
2. Bank of financing of sales. The service of this type of institution is the intermediation in the sale of durable goods by installments. At the same time, the offer and the sale of goods themselves are carried out not by a bank, but by a trading company. The bank only oversees the issue of payment for the purchase.
3. An investment bank is a participant in national and international financial systems. Its clients are legal entities and even the government of the state. The main task of the investment institute is to attract investments in various sectors of the economy, as well as intermediation in the resale of business and in the field of transactions with securities.

The division of commercial banks under the proposed option is rather arbitrary, since the majority of credit organizations cover all the known areas of activity: both financing and investment financial management.

Non-bank credit organizations

Non-bank credit institutions are commercial enterprises that can perform separate banking operations on the basis of a license. The principle of operation is reduced to settlement operations, since such structures have much less authority than bank financial organizations. Examples of this group of companies are as follows:

• Insurance companies. The principle of functioning is reduced to the issue of debt obligations used by customers to cover unforeseen costs, the list of which is stipulated in the contract. To purchase these bonds, customers pay an insurance premium. The difference between receipts of insurance premiums and payments by the insurer of reimbursements (if, of course, such happens), as well as administrative expenses of the company is the profit of the UK.
• Pension funds for a certain time collect cash contributions from customers, forming and accumulating working capital. Upon reaching the retirement age, a monthly benefit payment is required from the accumulated savings to the client. In this case, the respondent opens a personal savings account, which only reflects the amount of contributions, but does not give the right to use them in full. The amount of remuneration is calculated on the basis of the generally accepted formula and has time limits. Pension funds can function both as financial institutions of the Russian public sector and as private commercial companies.
• Pawnshops work in the field of personal finance and give out small consumer loans. The loan is granted on the security of only jewelry and valuable material items, which in the event of a default of debt are seized and sold at auctions. Until the loan expires, the pawnshop does not have the right to dispose of the pledged property, and the organization must ensure the safety of the property. The income in this case is not only the proceeds from the sold jewelry, but also from the interest on the loan, that is, the client must return not only the loan amount, but also a fixed percentage.

Investment Institutions

An investment financial institution is an institution specializing in attracting investments of respondents (investors). The object of investment are securities (shares, bonds, bills). Their cost can vary depending on the current market situation. Varieties of this group of organizations:

• Brokers and dealers are intermediaries in the performance of securities purchase and sale transactions that carry out their activities on the basis of a license.
• Investment companies - form a certain community, whose members trust the company to manage their investments. Such a union due to investment portfolios makes it possible to reduce the risks of individual investors to naught.
• The investment fund, an intermediary between the creditor and the borrower, differs from ordinary brokers in that it issues its own debt obligations, mobilized in objects subject to privatization of other companies. Revenue from the sale of its securities the fund sends to purchase bonds of other organizations. The difference between the sale and purchase of these securities is the income of the fund, and the resulting profit at the end of the reporting year in the form of dividends is distributed among its members.
• The stock exchange is a securities market, which, in fact, produces them and provides the conditions for making deals with shares and bills.

Credit Unions

Credit cooperatives are among the non-bank credit organizations, but because such an organization does not pursue profit, it can be classified as a separate group. The principle of the union is based on the financial mutual assistance of the member-participants.

A variety of credit unions are mutual funds, which can be established by a group of individuals and legal entities on one common feature, for example, territorial. Credit unions, as well as commercial banks, issue loans at interest and take deposits in the form of deposits. The only difference is that these services are available only to members of the cooperative, and the percentage of loans issued is distributed among the participants in proportion to their contributions.

The need to create an MFI

The Great Depression that took place in the 1930s, the collapse of the European regional market as a result of the Second World War, the refusal of most countries from the gold standard, numerous regional and world crises during the post-war period served as prerequisites for the creation of a single centralized system for regulating foreign exchange interstate relations.

Thus, in 1944, as a result of negotiations in which 29 countries participated, a decision was taken to create a new currency system, the International Monetary Fund (IMF). The International Bank for Reconstruction and Development (IBRD) was established as an executive body.

The main financial organizations of the world

Of course, for the functioning of global monetary and financial relations, the MFI and IBRD are not enough. The effectiveness of international economic relations is ensured by the following institutions:

• The International Development Association (IDA), which provides loans to developing countries on preferential terms.
• International Finance Corporation - supports the private sector of states.
• International Investment Guarantee Agency - regulates investment flows in developing countries.
• Bank for International Settlements - conducts international financial and foreign exchange operations between central banks of different countries.

Along with the world's international financial institutions there are also regional ones:

• The European Bank for Reconstruction and Development - attracts investments in the European economic region, and also carries out creditor activity.
• The European Financial Society - carries out banking activities in the European region.
• European Investment Bank.
• Asian Development Bank - provides concessional loans to Asian countries.
• African Development Bank.
• Inter-American Development Bank.
• The League of Arab States - provides an effective economic relationship between the Arab countries.

Summary

Just as demand generates supply in the consumer market, the existence of monetary and economic relations generates the emergence of financial institutions, the forms of which vary depending on the specifics of their functioning. Some of them work exclusively in the field of private lending, while others provide services to legal entities and government agencies. At the same time, state financial institutions, accountable to the government, function in close relationship with commercial credit enterprises.