Explain how financial institutions serve the needs of consumers- small.docx
- 1. Explain how financial institutions serve the needs of consumers, small businesses, and corporations. Solution Financial institutions are the businesses and organizations involved in the collection and distribution of money. They develop the methods and procedures that allow them to collect money from depositors which includes big shots and general public and lend it out to borrowers. They develop various financial securities and create and provide the financial markets to the society where lenders, borrowers, investors, businesses, speculators, and hedgers can exchange money for future payments to gain interest. The finanicial institutions take steps for sharing risk, such as the pooling of insurance premiums for financial protection. This pooled-in money and deposits is given as loans or as an investment to cusumers, small businesses and other organizations to finance specific projects or to provide financing for other needs. Businesses and Corporations make money by supplying products and services that are desirable and, thus, the greater are the returns on the investments in the business. In their desire to earn greater returns, financial institutions help to funnel money to the most successful businesses, which allows them to grow faster and supply even more of the desirable goods and services. This is how financial institutions greatly contribute to the efficient allocation of economic resources. Hence, financial institutions are also acts as financial intermediaries. Financial intermediaries profit by earning higher returns on their investments than they pay for their sources of money like depositors, customers, lenders and general public. Financial Institutions provide many services to its customers, which includes deposits, insurance policies, and pension payouts.