The Money Market Where? Made up of all those people and organizations that want money, and all the people and organizations willing and able to supply money (namely a banking system that creates deposit money and a central bank that issues notes and coins).
The Money Market Banks = main type of financial institutions Product is money, in the form of loans and other financial products. A financial intermediary because it brings together customers who want to save money and customers who want to borrow it.
What Banks Do Accept deposits of money and savings from their customers. Use customers’ money to make more money through loans. Charge interest on loans. Task: If a customer borrowed $1,000 repayable over one year in 12 monthly installments and is charged interest at 5% of the loan, how much must the customer repay the bank in total? (Interest rate represents the cost of borrowing money.)
Purpose of Interest Charges Some customers can’t repay the loans, hence, making loans is risky. As a result, the greater the risk, the higher the interest rate a bank will charge. Interest charges help to compensate a bank for any reduction in value of the money it has tied up in loans due to rising price inflation.
What Banks Do Charge fees for the provision of other financial services. Withdrawals from automated cash machines. Exchanging and transferring foreign currencies. Buying and selling shares in public limited companies. Providing life, property and travel insurance. Issuing debit and credit cards. Storing valuables.
What Banks Do Charge fees for the provision of other financial services. Organizing customer payments in the form of cheques or electronic transfers (telegraphic transfer/ remittance) to the bank accounts of other people, businesses or government authorities. Telephone and Internet banking services.
What Banks Do Make investments in the shares of other public limited companies by using the money deposited by its customers. Banks make money when selling shares that have increased in value. Banks make money from the profits made by the companies they have invested in.
The 10 biggest banks in the world by market value Banking Group Profit 2010 Market value US$ billion US$ billionIndustrial & Commercial Bank of China 16.3 210.3China Construction Bank 15.6 192.6HSBC 6.0 171.8JP Morgan Chase 11.7 143.7Bank of China 11.9 127.1Bank of America 6.3 127.0Wells Fargo 12.3 123.5Citigroup -6.1 106.6BCO Santander 12.8 93.5Ita Unibanco 5.8 83.7
Commercial Banks Also called ‘high-street banks’ because they have retail branches located in most cities and town. But Many banks provide telephone and online banking services so their customers don’t have to visit the branch. E.g. HSBC, Citigroup, Bank of America, Barclays Bank
Commercial Banks Established to provide financial services for small businesses but now they serve everyone. Provides a range of services:• Accepting deposits of money & • Providing insurance savings• Helping customers make and receive • Operating pension funds payments• Making personal and commercial • Providing financial & tax planning loans advice• Buying and selling of shares for • Exchanging foreign currencies customers
Credit Unions A cooperative, not-for-profit organization, owned by and for its members. Started by people people who worked or lived together to provide low-cost loans to members who couldn’t borrow from banks. Popular in the US. Services provided include checks, credit cards and loans to small businesses. E.g. America’s Credit Union, UK Credit Union
Mutual Societies Known as savings and loans associations or building societies in some countries. Owned and run on behalf of their members or customers. Specialized in providing mortgages to buy property but now provide many commercial banking services as well. E.g. Northwestern Mutual
Investment Banks Specialize in helping large business organizations raise finance to fund their operations and expansion, usually through helping them to issue and sell stocks and shares on the stock market. Also provide advice on company mergers and takeover. E.g. J.P. Morgan Chase, Morgan Stanley, Bank of America Merrill Lynch, Deutsche Bank.
Islamic Banks Based on the principle of Islamic Sharia Law, which forbids interest charges and payments, banks earn money by charging customers for banking services, including making loans, and people who deposit their money will earn a share of the bank’s profits instead of paid interest. Many multinational banking organization, e.g. HSBC, also provide Sharia compliant banking services in many countries. E.g. Bank Melli Iran, al Rajhi Bank.