Question

Details of the assessment question: “A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. Financial institutions encompass a broad range of business operations within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers”

Prepare a Assignment 1000 word to cover the following:

1- Discuss the role of the financial institutions in the Investment Process for the Individual Investors and Institutional Investors?

. 2- Provide 3 types of financial institutions and the services provided by those financial institutions in the UAE financial system?

Answer 1

1- A) What Is a Financial Institution (FI)?

Financial institutions are involved in the process of increasing the level of investments of various economies, particularly the capital goods needed for raising productivity. Credit facilities (loan) have a vital role to play here, in raising the investment to the level necessary to achieve a self-sustained growth.

A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. Financial institutions encompass a broad range of business operations within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers. Virtually everyone living in a developed economy has an ongoing or at least periodic need for the services of financial institutions.

Key Takeaways

• A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange.
• Financial institutions encompass a broad range of business operations within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers.
• Financial institutions can vary by size, scope, and geography.

B) The Role of Financial Instituitions

Financial institutions facilitate payments between economic units against their liabilities, As well as by obtaining savers' funds against their own liabilities, and then by lending to others, They as well as their mediation between borrowers and savers are selling rights to themselves to depositors, And then buy rights on the borrowers from them mainly, and sell these institutions and buy future rights and this activity in the completion of payments and promises to make future payments, Which is very important in the modern economy, and that this mediation offers these economies many benefits, including.

1-The rights of these institutions are of a liquid nature, so it is necessary to clearly distinguish them from the rights of other borrowers such as bonds, which gives these rights the ability to switch to cash quickly and without loss.

2-Reduce the cost of transactions for both lenders and borrowers

3-Risk pooling By combining these depositors' amounts, these institutions reduce the risk of borrowing, including providing protection to their depositors.

C) Advantages of financial institutions:

Financial institutions provide many advantages that can be summarized as follows:

Creating the stock market issued by economic units and various institutions.

1- Risk distribution.

2- Reducing the cost of conducting financial transactions.

3- Compilation of small saving.

D) What is Institutional investors?

An institutional investor is a company or organization that invests money to buy securities or assets such as real estate. Unlike individual investors who buy stocks in publicly traded companies on the stock exchange, institutional investors purchase stock in hedge funds, pension funds, mutual funds, and insurance companies. They also make substantial investments in the companies, very often reaching millions in dollars in value. The institutional investor is not the beneficiary of the earnings from the investment, but the company as a whole act as a beneficiary.

Institutional investors are organizations that pool together funds on behalf of others and invest those funds in a variety of different financial instruments and asset classes. They include investment funds like mutual funds and ETFs, insurance funds, and pension plans as well as investment banks and hedge funds.

These can be contrasted with individuals who are most often classified as retail investors.

Key Takeaways

• Institutional investors are large market actors such as banks, mutual funds, pensions, and insurance companies.
• In contrast to individual (retail) investors, institutional investors have greater influence and impact on the market and the companies they invest in.
• Institutional investors also have the advantage of professional research, traders, and portfolio managers guiding their decisions.
• Different types of institutional investor will have different trading strategies and invest in different types of asset.

E) What is Individual Investor?

A retail or individual investor is someone who invests in securities and assets on their own, usually in smaller quantities. They typically buy stocks in round numbers such as 25. 50, 75 or 100. The stocks they buy are part of their portfolio and do not represent those of any organization.

However, many individual investors make trades based on their emotions. They let fear and greed dictate the stocks they buy. It is not the most optimal way to trade as stock markets are incredibly volatile, and it is often hard to predict the direction in which the stock will move.

An investor is an individual that puts money into an entity such as a business for a financial return. The main goal of any investor is to minimize risk and maximize return. It is in contrast with a speculator who is willing to invest in a risky asset with the hopes of getting a higher profit.

F) Individual vs. Institutional Investors

The two types of investors differ in a number of ways, including:

1. Access to resources

Institutional investors are very large companies and can take advantage of numerous resources such as financial professionals to oversee their portfolio on a daily basis, allowing them to enter and exit the market at the right time. Individual investors need to do the same on their own through research and available data.

2. Decision-making

With institutional investors, the investments are usually overseen by different individuals in the organization. For example, the board of directors makes the decision-making process more challenging as people are likely to propose different ideas on what trades to make. As an individual investor, you are your boss and the sole decision maker when it comes to buying and selling shares.

3. Identifying investment opportunities

Since institutional investors are able to access a large number of resources and capital, they are privy to investment structures and products available before anyone else. By the time investment opportunities reach from the hedge fund or private equity funds to the individual investor level, the rest are able to use second-hand investment strategies that have already been implemented by the large institutions.

2- Provide 3 types of financial institutions and the services provided by those financial institutions in the UAE financial system?

According to Moody’s, the UAE banking system is stable due to the banks’ resilient capital levels and liquidity buffers.

For anyone considering a career in banking in UAE, this list of top banks in UAE is a helpful guide on where to start. To learn more, see our lists of financial institutions.

A) The top banks in UAE are:

Emirates NBD

Emirates NBD is the largest banking group in the Middle East. It is headquartered in Dubai and employs 9,000 staff. The bank currently manages 221 branches and 1,023 ATMs and SDMs in UAE and overseas. It operates through different business segments: Retail Banking and Wealth Management, Wholesale Banking, Islamic Banking (IB), International, and Information Technology and Operations.

In 2016, the bank’s total assets amounted to US$121 billion and net profit reached US$1.97 billion.

National Bank of Abu Dhabi

Established in 1968, the National Bank of Abu Dhabi is the largest lender among banks in UAE. It provides corporate, retail, private, investment, and Islamic banking services. The bank is headquartered in Abu Dhabi and is present in 19 countries across the world.

The National Bank of Abu Dhabi employs 10,849 staff. In 2016, the bank reported total assets of US$114 billion and posted a net profit of US$1.44 billion.

Abu Dhabi Commercial Bank

Founded in 1985, Abu Dhabi Commercial Bank provides retail, commercial, Islamic banking, and other financial services. The bank operates through the following business segments: Consumer Banking, Wholesale Banking, Investments and Treasury Banking, and Property Management. It employs 16,924 staff and is headquartered in Abu Dhabi.

As of 2016, the total assets of the bank were US$70 billion and net profit was US$1.13 billion.

First Gulf Bank

First Gulf Bank was established in 1979 and is headquartered in Abu Dhabi. The bank‘s business segments include Wholesale Banking Group, Treasury and Global Markets, Consumer Banking, Real Estate, and Other Operations. It employs around 1,400 individuals and is present in 19 countries, including Kuwait, China, the UK, France, Malaysia, Bahrain, Sudan, Hong Kong, Switzerland, Lebanon, Labuan, Oman, Egypt, USA, Jordan, Brazil, and India.

In 2016, the bank’s total assets amounted to US$66 billion and net profit reached US$1.65 billion.

Dubai Islamic Bank

Dubai Islamic Bank came into existence in 1975 and is headquartered in Dubai. The bank operates through its Consumer Banking, Corporate Banking, Real Estate Development, Treasury, and Other business segments. It serves around 1.7 million customers and maintains 90 branches across UAE.

In 2016, the bank reported total assets of US$47 billion and posted a net profit of US$1.12 billion.

Mashreq Bank

Mashreq Bank was founded in 1967, making it one of the older banks in UAE, and is headquartered in Dubai. The bank is a Joint Stock Company and is an associated company of the HSBC Group. It provides retail banking, commercial banking, investment banking, Islamic banking, brokerage services, and asset management services. The bank operates around 45 domestic branches and 20 international branches and is present in Egypt, Qatar, Kuwait, and Bahrain. It currently employs around 4,000 staff.

As of 2016, the bank’s total assets were US$33 billion and net profit was US$531 million.

Abu Dhabi Islamic Bank

The bank was established in 1997 and is headquartered in Abu Dhabi. It operates through the following segments: Global Retail Banking, Global Wholesale Banking, Private Banking, Treasury, Real Estate, and Others. It is present in Egypt, Iraq, Saudi Arabia, and the UK.

In 2016, the total assets of the bank amounted to US$33 billion and net profit reached US$531 million.

Union National Bank

Founded in 1982, Union National Bank provides commercial and investment banking services to salaried individuals, self-employed individuals, high net worth individuals, and business entities in the UAE and other countries. Headquartered in Abu Dhabi, the bank manages a network of 76 branches around the world. It operates through its International and Financial Institutions division and Treasury and Investments division.

In 2016, the bank reported total assets of US$28 billion and posted a net profit of US$430 million.

Commercial Bank of Dubai

The Commercial Bank of Dubai was founded in 1969 and is headquartered in Dubai. The bank offers corporate banking, commercial banking, personal banking, Islamic banking, and support services. As the 35th largest bank in the Persian Gulf region, it is one of the most important banks in UAE.

As of 2016, the bank’s total assets were US$17 billion and net profit was US$273 million.

RAKBank

Established in 1976, RAKBank is headquartered in Ras Al-Khaimah, UAE. It is also known as the National Bank of Ras Al Khaimah (P.J.S.C). The bank provides retail and commercial banking services to individuals and businesses in UAE. The business operates through five segments: Retail Banking, Wholesale Banking, Business Banking, Treasury, and Insurance Business. It manages a network of 38 branches and serves around 700,000 customers.

B) Services provided by those financial institutions

          In today's financial services marketplace, a financial institution exists to provide a wide variety of deposit, lending and investment products to individuals, businesses or both. While some financial institutions focus on providing services and accounts for the general public, others are more likely to serve only certain consumers with more specialized offerings.

To know which financial institution is most appropriate for serving a specific need, it is important to understand the difference between the types of institutions and the purposes they serve.

Key Takeaways

• There are 9 major types of financial institution that provide a variety of services from mortgage loans to investment vehicles.
• As financialization continues to permeate our lives, it is increasingly likely that you will have an account or product offered by several of these types.
• Here we take a look at these, from central banks to neighborhood banks and everything in between.

C) Types of Financial Institution

1- Central Banks

Central banks are the financial institutions responsible for the oversight and management of all other banks. In the United States, the central bank is the Federal Reserve Bank, which is responsible for conducting monetary policy and supervision and regulation of financial institutions.

Individual consumers do not have direct contact with a central bank; instead, large financial institutions work directly with the Federal Reserve Bank to provide products and services to the general public.

The major categories of financial institutions include central banks, retail and commercial banks, internet banks, credit unions, savings, and loans associations, investment banks, investment companies, brokerage firms, insurance companies, and mortgage companies.

2- Retail and Commercial Banks

Traditionally, retail banks offered products to individual consumers while commercial banks worked directly with businesses. Currently, the majority of large banks offer deposit accounts, lending and limited financial advice to both demographics.

Products offered at retail and commercial banks include checking and savings accounts, certificates of deposit (CDs), personal and mortgage loans, credit cards, and business banking accounts.

3- Internet Banks

A newer entrant to the financial institution market are internet banks, which work similarly to retail banks. Internet banks offer the same products and services as conventional banks, but they do so through online platforms instead of brick and mortar locations.

4- Credit Unions

Credit unions serve a specific demographic per their field of membership, such as teachers or members of the military. While products offered resemble retail bank offerings, credit unions are owned by their members and operate for their benefit.

5- Savings and Loan Associations

Financial institutions that are mutually held and provide no more than 20% of total lending to businesses fall under the category of savings and loan associations. Individual consumers use savings and loan associations for deposit accounts, personal loans, and mortgage lending.

6- Investment Banks and Companies

Investment banks do not take deposits; instead, they help individuals, businesses and governments raise capital through the issuance of securities. Investment companies, more commonly known as mutual fund companies, pool funds from individual and institutional investors to provide them access to the broader securities market.

7- Brokerage Firms

Brokerage firms assist individuals and institutions in buying and selling securities among available investors. Customers of brokerage firms can place trades of stocks, bonds, mutual funds, exchange-traded funds (ETFs), and some alternative investments.

8- Insurance Companies

Financial institutions that help individuals transfer risk of loss are known as insurance companies. Individuals and businesses use insurance companies to protect against financial loss due to death, disability, accidents, property damage, and other misfortunes.

9- Mortgage Companies

Financial institutions that originate or fund mortgage loans are mortgage companies. While most mortgage companies serve the individual consumer market, some specialize in lending options for commercial real estate only.