Introduce the key concepts and components of the banking and finance industry, including the role of financial institutions, financial markets, and the importance of banking in the economy.
Overview of Banking and Finance – Study Notes
| Term | Definition | Key Points |
|---|---|---|
| Banking | The business of accepting deposits, providing loans, and offering payment/settlement services. | • Central role in money creation (fractional reserve). • Regulated by central banks and supervisory authorities. |
| Finance | Management of money, assets, and liabilities over time, including investment, risk, and valuation. | • Encompasses corporate, personal, and public finance. • Uses tools such as budgeting, forecasting, and financial analysis. |
| Financial System | Network of institutions, markets, instruments, and regulations that channel funds from savers to borrowers. | • Provides liquidity, price discovery, risk sharing, and information processing. |
| Category | Primary Functions | Examples |
|---|---|---|
| Commercial Banks | Accept deposits, extend loans, process payments, issue cards. | JPMorgan Chase, HSBC, Bank of America |
| Investment Banks | Underwrite securities, advise on M&A, trade securities, asset management. | Goldman Sachs, Morgan Stanley |
| Retail Banks | Focus on individual consumers: savings accounts, mortgages, personal loans. | Wells Fargo, Barclays Retail |
| Co‑operatives & Credit Unions | Member‑owned, non‑profit, provide banking services at lower cost. | Navy Federal Credit Union |
| Non‑Bank Financial Intermediaries | Provide credit, leasing, factoring, micro‑finance. | PayPal, Square, micro‑finance NGOs |
| Central Banks | Issue currency, set monetary policy, act as lender of last resort, supervise banks. | Federal Reserve (US), European Central Bank (ECB) |
Deposit Taking
Lending
Payments & Settlements
Asset Management & Wealth Services
Risk Management & Compliance
| Market | Instruments | Participants | Purpose |
|---|---|---|---|
| Money Market | Treasury bills, commercial paper, repos, certificates of deposit | Banks, corporations, governments | Short‑term financing (≤1 year) |
| Capital Market | Bonds, equities, preferred shares | Investors, issuers, underwriters | Long‑term financing |
| Foreign Exchange (FX) Market | Spot, forwards, swaps, options | Banks, corporates, hedge funds, central banks | Currency conversion, hedging, speculation |
| Derivatives Market | Futures, options, swaps, CDS | Hedgers, speculators, arbitrageurs | Risk transfer, price discovery |
| Alternative Finance | Crowdfunding, peer‑to‑peer lending, fintech platforms | Start‑ups, SMEs, retail investors |