Receives interest on loans,
which it invests
Receives premiums, which it
$ $ invests for interest and growth
$ $
IN
VESTMENT
IN
VESTMENT
$$$ $$ $$$ $$
Financial
institutions
Around the globe, money moves between banks, businesses, governments,
organizations, and individuals, crossing time zones, continents, and cultures.
At the heart of the global financial systems are the banks, hedge funds, pension
funds, and insurance companies that hold and invest the world’s money. Without
the liquidity that banks provide, organizations and individuals would find it hard
to borrow or save money, invest in existing businesses, or start up new businesses.
Services and fees
Financial institutions make money
primarily by lending out cash
at a higher interest rate than the
one they are paying to their
depositors. They also make
money by investing the cash
entrusted to them by customers,
and by buying and selling assets
for clients and charging a fee for
this service. They lose money
when debts are not repaid, or
only partially repaid, or in the
event that they make the wrong
investment decision. Does not have a^
banking license or is not
supervised by a banking
regulator. May provide
banking services but is
not allowed to hold
deposits from public.
See pp.82−83
Insures companies
and individuals against
named risks, invests
premiums, and pays
out claims under terms
of the policy schedule.
Required to reinsure
its own risks to prevent
collapse. Se e pp.78−79
Public and
investors
Non-bank
financial institution
Insurance
company
Commercial
bank
$$$ $$$
$ $ $ $
LOAN PREMIUMS
INSURANCE
PAYOUT S
INTEREST
US_070-071_OV_How_financial_instituations_make.indd 70 13/10/2016 16:17