Financial Management



Financial Management

Ques 3) What can a financial institution often do for a deficit economic unit (DEU) that the DEU would have difficulty doing for itself if the DEU were to deal directly with an SEU?

Generally, the main aim of SEU is to supply small amount of money whereas DEUs aim is to acquire a huge sum of money. Therefore for surplus and deficit economic units, it becomes a complex process in order to get close their-self to organize a mutual beneficial exchange of fund for securities. The involvement of financial institution can save them. Banks such as saving and loan, insurance and other financial facilitator can obtain small amount of money from individual and through that they form a large pool of funds which is used to purchases securities from government, business and individuals (Gallagher and Andrew, 2011).

This is a simple an example through which financial institutions offers their service to DEE which is an advantageous thing for them.

Ques 4) Compare and Contrast Mutual and Stockholder owed savings and loan associations.

To compare and contrast mutual and stockholder owed savings and loan associations, it is necessary to understand what these term means. In Mutual savings and loan association there are no stockholders and the entire profit theirself, while stockholder owed savings and loan associations is a financial institution which concentrates in savings deposits and mortgage loans and this loan and saving are further lend to the other people who are seeking loans.

However, there are some savings and loan associations which is possesses by the stockholders such as commercial banks and corporation that their stockholders owned. Now, Mutual savings and loan associations possesses by depositors. When amount is deposit by the person in Mutual savings and loan associations, they become part of the firm's owner, the profit from these amounts are place into a special account which is known as reserve account through which a return ins given to them in form of dividends. The payment of dividend is made occasionally to the owners and depositors (Gallagher and Andrew, 2011).

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Ques 5) Which type of insurance company generally takes on the greater risks: a life insurance company or a property and casualty insurance company?

Taking risk is part of financial institution activities, as they are seeking of high return and ultimately has to take more risk. However, tendency of taking risk depend on the size and activity of ...