A financial institution is an organization that handles a variety of monetary transactions, such as cash deposits, loans, securities exchanges, and raising capital. It mediates transactions between people who invest or deposit money and people who need to borrow or raise money.
Definition and examples of financial institutions
Financial institutions are businesses that provide different types of financial services to customers. They use the funds that customers provide and then distribute the funds to individuals and businesses that need them. In this way, they bring depositors and sponsors together to facilitate transactions in the financial markets. For example, these businesses allow borrowers to obtain loans using funds that depositors have provided.
These organizations also help clients raise funds and invest their money. This includes facilitating the buying and selling of securities such as bonds and stocks. Some financial institutions also help clients protect their assets and help them manage their money. For example, some offer insurance policies that protect homes or cars from financial loss. Financial institutions may also buy and sell foreign currency.
The two most common examples of financial institutions are: consumer banks and credit unions. These institutions allow customers to open current and savings accounts to safely and conveniently store their money. Banks and credit unions then use customer deposits to make loans and credits to other customers, earning income through interest charges. Through these institutions, you can also manage many other tasks, such as cashing checks, exchanging currency, investing money in a retirement account and paying bills.
