Solve the Dilemma to 15.7 Seeing the Financial Side of Business Dr. Stephen Hill

Question

Solve the Dilemma to 15.7 Seeing the Financial Side of Business Dr. Stephen Hill, a successful optometrist in In- Despite having read mounds of brochures from various local dianapolis, Indiana, has tinkered with various and national financial institutions, Hill is still somewhat unclear inventions for years. Having finally developed about the merits and capabilities of each type of financial what he believes is his first saleable product (a institution. He has turned to you, his 11th patient of the day, truly scratch-resistant and lightweight lens), Hill for help. has decided to invest his life savings and open Hill Optometrics to manufacture and market his invention. Discussion Questions Unfortunately, despite possessing true genius in many areas, 1. List the various types of U.S. financial institutions and the Hill is uncertain about the "finance side" of business and the primary function of each. various functions of different types of financial institutions in the 2. What services of each financial institution is Hill's n economy. He is, however, fully aware that he will need financialcompany likely to need? services such as checking and savings accounts, various short- term investments that can easily and quickly be converted to cash as needs dictate, and sources of borrowing capacity-- ew Which single financial institution is likely to be best able to meet Hill's small company's needs now? Why? 3. should the need for either short- or long-term loans arise.

Explanation / Answer

Types of Financial Intitutions in US

1. Commerical Banks- Commercial banks accept deposits and provide security and convenience to their customers.

2. Investment Banks- Primary function is giving consultancy and helping businesses on financial matters.

3. Insurance Companies- its help mitigating risk of loss be it life, accident, asset, property.

4. Brokerage Firms- it acts as an intermediary between sellers and buyers in a financial transaction.

5. Mortgage Companies- its helps raising funds or loans against mortgage.

Services of each financial institution Hill's company likely to need

1. Commerical Banks- It would help in providing working capital, long term loans and would maintain checking and saving accounts of the Hill's company.

2. Investment Banks- It would help services like raising money through equity, issuer of security, underwriting debt, facilitating merger and acquisitions and financial advisory etc.

3. Insurance Companies- It would help in insurance of Hill's company assets, misfortunes, accidents, property damage, health insurance to employees of the company.

4. Brokerage Firms- It would help Hills company in investing activities with brokerage charge. its an intermediary between buyer and seller and provides a platform for execution of a transaction.

5. Mortgage Companies- It would provide Hill's company funds and loans against mortgaged assets of the company.

Financial Institution likely to meet Hill's small company's needs

From the above listed institutions, Hill's company needs would be best met by services given by Commercial Bank.

Reason:

Since the size of company is small and is in its early stage. its does not need the services like investment services, insurance services, brokerage services, mortgage services ( it requires assets to be mortgaged against loans). as the size of company grows, it would look to avail insurance services, investment banking services to raise equity, debt through public offering, brokerage services to invest funds.

but as of now the company needs to have checking and saving accounts to start operations. have access to short term and long term funds, loans. a place where short term investments can be easily converted into cash as required and without much hassle.

So hill's new company should go for the services of a Commercial Bank to start with.

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