PLEASE ONLY FINANCE EXPERT ANSWER THIS QUESTION. THIS MUST BE CORRECT AND PERFEC

Question

PLEASE ONLY FINANCE EXPERT ANSWER THIS QUESTION. THIS MUST BE CORRECT AND PERFECT!!

PLEASE DO NOT COMBINE THE ANSWERS INTO ONE PARAGRAPH, ANSWERS OF A AND B SHOULD BE SEPARATED. DO NOT ANSWER THIS WITH YOUR HANDWRITING, PLEASE TYPE ON YOUR COMPUTER!!

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1. Savings Institutions, Credit Unions, and Finance Companies have been successful as “niche lenders,” that is, specializing in one or more specific areas of lending.

A. In what lending area do each of these specialize?

B. What advantages do each of these lenders have compared to Commercial Banks?

Explanation / Answer

A.

Savings Institutions: A savings institution is a financial institution whose primary purpose is accepting savings deposits and paying interest on those deposits. They offer many of the same services as commercial banks, including checking accounts and both business and personal loans. Some issue publicly traded stock, while others are mutual organizations owned by their depositors.

Credit Union: The basic business model of a credit union is that members pool their money– technically, they are buying shares in the cooperative– in order to be able to provide loans, demand deposit accounts, and other financial products and services to each other. Any income generated is used to fund projects and services that will benefit the community and interests of its members.

Finance Companies: The primary function of finance companies is to make loans to individuals and corporations. Finance companies do not accept deposits, but borrow short- term and long-term debt, such as commercial paper and bonds, to finance the loans.

B.

Savings Institutions: Savings institutions provide many of the same services to customers as banks, including deposits, loans, mortgages, checks and debit cards. However, savings institutions place a stronger emphasis on residential mortgages, whereas banks tend to concentrate on working with large businesses and on unsecured credit services such as credit cards.

Credit Union: Credit unions are different from traditional banks. The biggest difference is that banks function to generate profits for their shareholders, while credit unions operate as not-for-profit organizations designed to serve their members, who also are de facto owners. For banks, the need to deliver profits to the bottom line usually results in more and higher fees, lower returns on deposits and higher lending rates than credit unions. While credit unions still must make enough to cover their operations, the absence of the need to generate profits generally allows for lower fees and account minimums, higher rates on savings, and lower borrowing rates for their members/owners. The members are paid dividends on the credit unions’ earnings, much as shareholders are paid dividends on a company’s stock earnings. Credit unions have similar services as banks but are focused more for small savers and checkable type of transactions. They provide lending services and are owned by their members.

Finance Companies: Financial institutions provide a service as intermediaries of the capital and debt markets. They are responsible for transferring funds from investors to companies, in need of those funds. The presence of financial institutions facilitate the flow of monies through the economy. To do so, savings accounts are pooled to mitigate the risk brought by individual account holders in order to provide funds for loans. A bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit. A commercial bank accepts deposits from customers and in turn makes loans, even in excess of the deposits; a process known as fractional-reserve banking.

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