Financial institutions (finance? Institutions) refer to financial intermediaries engaged in financial services, which are part of the financial system, and financial services (banks, securities, insurance, [1] trusts, funds and other industries) correspond to this.

Financial intermediaries also include banks, securities companies, insurance companies, trust and investment companies and fund management companies. At the same time, it also refers to lending institutions, which provide loans to companies with financial turnover to customers. The interest rate is relatively higher than that of banks, but it is more convenient for customers to borrow because they do not need complicated documents to prove it.

Extended data

Risks of financial institutions

1, market risk

Market risk refers to the risk that investors cannot obtain expected returns due to market fluctuations, including adverse fluctuations in prices, interest rates and exchange rates due to economic reasons. In addition to the adverse effects caused by the fluctuation of stocks, interest rates, exchange rates and commodity prices, market risks also include the cost risk of securities lending, dividend risk and associated risks.

The bankruptcy of orange country in the United States highlights the harm of market risk. The county treasurer invests the "orange county portfolio" in derivative securities such as so-called "structured bonds" and "reverse floating interest rate products". When the interest rate rises, the income of derivative products and the market value of these securities decrease, resulting in a loss of $654.38+07 billion in Orange County portfolio.

Gibson Company also faces similar market risks, because it bought a large number of interest rate derivatives in anticipation of falling interest rates. When the interest rate went up, the company lost 20 million dollars.

2. Credit risk

Credit risk refers to the possibility that one party fails to perform its obligations, including loans, swaps, options and the risk of losses caused by the counterparty's default in the settlement process.

Financial institutions will face credit risks when signing loan agreements, OTC contracts and granting credit. Through risk management and control, the counterparty is required to keep enough collateral, pay the deposit and stipulate the net settlement clause in the contract, which can minimize the credit risk.

Reference source? Baidu encyclopedia-financial institutions