Financial Institutions in the United States
Financial companies are one of the most important pillars of the modern economy. Financial services provide the basic economic services available, which includes retail lending, investment, mortgage, and insurance. Financial companies are also responsible for regulating the financial activities of other companies and acting as a mediator when certain organizations negotiate with others. The main objective of financial companies is to secure the long-term liabilities of their clients and provide investment opportunities. This is the reason why financial companies are able to offer financial assistance to a wide range of customers, both large and small.
Financial companies provide large amounts of credit to many businesses and individuals, which enable them to meet their short-term and long-term needs easily. Banks usually act as the financial intermediary between the borrowers and the lenders. They arrange loans for small businesses and individuals and issue cheques or drafts to make the repayments. The process of borrowing from banks involves many formalities and can take a long time.
Many financial companies earn interest on their deposited money. This is how they earn profits. In addition to earning profits, banks also earn the income from the interest earned on the deposited funds. Banks earn the greatest income from capital gains, as the greater the amount deposited, the greater will be the rate of return. Capital gains are however only realized if the bank makes profits on the principal amount of funds, unlike the interest.
Financial companies earn money through dividends. A dividend is paid to shareholders as an annual payment. The dividend is calculated by taking current liabilities and current assets, and then subtracting the current net worth. The difference between the two numbers gives the dividend.
The financial companies play a major role in the overall economic activity of the economy. Many economic indicators depend on the condition of the financial sector. To forecast the overall economic performance of the financial sector, a wide range of economic variables including gross domestic product growth, consumer price index, interest rates, unemployment rates, and balance of payments are used. These are followed by other factors like political and external environment, trade flows and balance of payments, and other relevant external factors. All these variables together provide a picture of the state of the economy.
The banks are categorized into two categories: one is the commercial loan and the other is the merchant cash advances. Among them the commercial loan lenders have relatively higher number of assets. Commercial loans are unsecured loans that are made by the commercial loan lenders against the assets that they own or under their ownership. The most common types of commercial loans are: first mortgages, home mortgages, business mortgages, commercial lines of credit, mortgage notes, business purchase loans, merchant financing, and purchase loans. There are also private commercial finance companies, government sponsored enterprises, and cooperative financing companies.
The Federal Reserve Banks is the major financial companies involved in the financing activities of the United States. They form the major intermediaries for the trading of financial products such as government debt, bank loans, and mortgage payments. In addition to this, they also provide financial support to the United States economy by acting as the sole lender of loans granted by federal agencies. These banks also facilitate payment of postal checks and make money market mutual transactions.
Some of the financial companies also deal with alternative investment products. Examples of these are real estate investment companies, wealth management companies, life insurance companies, and bond markets. Most of these firms are usually categorized as mutual funds, private mutual funds, or endowment funds. Most of these firms operate through subsidiary companies. For instance, a bond market firm may have its branches in New York, Chicago, and Texas. A financial company may have its subsidiary in New York, Texas, or some other state.