Unformatted text preview: ppliers and demanders of various types
of funds can make transactions. A third is through private placement. Because of
the unstructured nature of private placements, here we focus primarily on financial institutions and financial markets. Financial Institutions
Financial institutions serve as intermediaries by channeling the savings of individuals, businesses, and governments into loans or investments. Many financial
institutions directly or indirectly pay savers interest on deposited funds; others
provide services for a fee (for example, checking accounts for which customers
pay service charges). Some financial institutions accept customers’ savings
deposits and lend this money to other customers or to firms; others invest 22 PART 1 Introduction to Managerial Finance customers’ savings in earning assets such as real estate or stocks and bonds; and
some do both. Financial institutions are required by the government to operate
within established regulatory guidelines. Key Customers of Financial Institutions
The key suppliers of funds to financial institutions and the key demanders of
funds from financial institutions are individuals, businesses, and governments.
The savings that individual consumers place in financial institutions provide
these institutions with a large portion of their funds. Individuals not only supply
funds to financial institutions but also demand funds from them in the form of
loans. However, individuals as a group are the net suppliers for financial institutions: They save more money than they borrow.
Business firms also deposit some of their funds in financial institutions, primarily in checking accounts with various commercial banks. Like individuals,
firms also borrow funds from these institutions, but firms are net demanders of
funds. They borrow more money than they save.
Governments maintain deposits of temporarily idle funds, certain tax payments, and Social Security payments in commercial banks. They do not borrow
funds directly from financial institutions, although by selling their debt securities
to various institutions, governments i...
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- Fall '13
- Finance, Corporation, Types of business entity