Chapter 13 Nondepository Financial Institutions KEY WORDS AND

Chapter 13 Nondepository Financial Institutions非存款 金融机构

KEY WORDS AND CONCEPTS LIFE INSURANCE POLICY – TWO TYPES WHOLE LIFE TERM PREMIUMS ACTUARIAL TABLES IRA – Individual Retirement Account MUTUAL FUNDS – Shares (like stock shares) Family of Funds 13 -2

KEY WORDS AND CONCEPTS CREDIT CARDS INVESTMENT BANKS Leveraged Buy-Outs (LBO’s) Initial Public Offerings (IPO’s) GRAMM-LEACH-BLILEY ACT FINANCIAL HOLDING COMPANIES 13 -3

5 MAIN TYPES OF NONDEPOSITORY INSTITUTIONS 1. LIFE INSURANCE COMPANIES人寿保险公司 2. PENSION FUNDS (RETIREMENT)养老基金（退休） 3. PROPERTY AND CASUALTY 受害者 (Shòuhài zhě) INSURANCE COs. 保�公司。 4. MUTUAL FUNDS 共同基金 5. FINANCE COMPANIES融�公司 6. SECURITIES, BROKERS, INVESTMENT Cos. �券、 ��人、投�商。 7. VENTURE CAPITAL & HEDGE FUND��投�和� 冲基金 13 -4

Life Insurance Companies • The first life insurance company in the U. S. was established 建立before the Revolutionary War 革命 战争 (1770’s) and is still in business. • Two Types of Structures for Insurance Co. 两家保�公 司的�构�型 1. Stock companies (owned by shareholders) 2. Mutual associations (ownership by the policyholders 保�客� bǎoxiǎn kèhù) Certificate of insurance 保险证书 (bǎoxiǎn) zhèngshū • The policy states the term (number of years) and the PREMIUM or cost�政策�定的期限（年数）和保 ��或�用 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -5

Life Insurance Companies (Cont. ) • Regulation of life insurance companies is done by the state banking authority�管 是由国家�行管理局 • Regulation is protection for the customers (public). Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -6

Life Insurance Companies (Cont. ) • 2 Main Types of life insurance policies: 1. Whole Life Insurance • Same PREMIUM that is paid through entire time of policy同�的保�，通�整个��的政 策 • Build up cash reserves or savings which can be withdrawn as borrowing or by closing the policy建立�金��或�蓄，可以被撤�，作 �借�或通�关�的政策 • Savings part pays a money market rate of interest �蓄部分支付��市�利率 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -7

Life Insurance Companies (Cont. ) • Types of life insurance policies: (Cont. ) 2. Term Life Insurance • Just insurance with no cash reserve or savings • Premiums are low at first but increase with the age of the insured individual保 �相��低，但随着投保人年�的增加 而增加 • Covers a period of time, say 20 or 30 years. Once the term expires期满 insurance is cancelled. 注销 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -8

Life Insurance Companies (Cont. ) • Based on actuarial 精算 (Jīngsuàn) tables, life insurance companies have ability to predict cash flow基于精算精算（Jīngsuàn） 表，寿�公司的�金流��能力 • Insurance companies use funds to buy longterm corporate bonds (20 to 30 years) and commercial mortgages通常保�公司使用多 余的�金���期公司�券（ 20至 30年）和 商�抵押�款 – Higher yields – Unlikely of having to sell prior to maturity不 可能在到期前出售 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -9

ACTUARIAL TABLE Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -10

DISCUSSION QUESTIONS 1. What is Life Insurance? 2. What is Regulation? Why do we need it? 3. What are the 2 types of Life Insurance? 4. What are premiums? 5. What do actuarial tables do? 6. What do insurance companies buy with the premiums they get from customers? Why? Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -11

Pension Funds (Retirement) • Individuals need pension plans to add to Social Security benefits (government money)个人需要退休 金�划增加社会保障福利（政府�金） • Most pension fund assets are in employersponsored plans大部分养老基金��都是在雇主�助 的�划中 • Two Types of Employer Plans 1. Defined Benefit Plan养老金的固定受益计划 – Employer only gives to this plan. In America, pension plans are going away as companies do not want to give this benefit anymore. 在美国，退 休金�划将作�公司不想再��个利益而放弃。 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -12

Pension Funds (Cont. ) • 2. Defined Contribution �献 (Gòngxiàn) Plan – Contribution may be made by employees or employers or by both. Matching funds. 配套资金 – Employee can choose the assets in which to invest. Create a portfolio of securities. �建�券�合。 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -13

Pension Funds (Cont. ) • In addition to employer-sponsored plans, some individuals set up their own pension plans在添加使用-�助�划， 一些个人建立他 们自己的退休金计划 – Individual Retirement Accounts (IRAs)—working people who are not covered by companysponsored pension plans公司� 助的退休金�划 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -14

Property & Casualty Insurance Companies (fire and theft protection) • Because of uncertainty of liability in this type of insurance, unable to plan their cash pay out requirements由于�种保 ��任的不确定性，无法�其�行�金 支付的要求 • Invest in municipal (local government) bonds市政债券 and liquid short-term securities短期债券 – Lower yields – Highly liquid Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -15

Mutual Funds • Money Market Mutual funds have been on the American financial scene since the 1970 s ��市�互助基金自 20世� 70年代以来一直 在美国金融�域 • A mutual fund pools (puts money together) the funds of many people and managers invest the money in a diversified portfolio of securities. 一个共同基金池（把�放在一起）， �多人和基金�理的�金投�于一个多元化 的�券�合。 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -16

Mutual Funds • Shares represent a portion of ownership in a portfolio held by the fund. 股票代表基金持有的投�� 合中的一部分。 • One fund may have stock from 100 different companies. Less risk. 一 只基金可能有来自 100个不同公司的 股票。股票的��。 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -17

Mutual Funds (Cont. ) • Mutual funds are regulated by the Securities and Exchange Commission (SEC)共同基金 由美国�券交易委�会（美国�券交易委� 会 • Primary goal of regulation is to protect the investor, you and me. �控的主要目�是保� 投�者，你和我。 • Many investors are attracted to families of mutual funds）。�多投�者被相互基金的家 庭吸引 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -18

Mutual Fund Illustration – example Fund Family Alibaba Bank of China Baidu Ten. Cent Air China Unicom China Offshore Oil China Tobacco Dennis Sinopec and many more A mutual fund is a “pool” of funds from many different companies Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -19

DISCUSSION QUESTIONS 7. What are pension plans? What is another name for them? Who provides them? 8. What are the two types? 9. What are plans for individuals called? 10. What is property & casualty insurance? 11. What do these companies invest in? Why? 12. What are mutual funds? 13. Why invest in mutual funds? 14. Who regulates mutual funds? Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -20

Finance Companies • Consumer Finance Companies – Make consumer loans – Specialty Finance Companies—specialize in credit card financing信用卡融� – Commercial finance Companies商�融 �公司 • Make commercial loans usually on a secured (collateral) 的抵押品 (de dǐyā pǐn) basis – Loans not as risky as consumer loans Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -21

Finance Companies (Cont. ) • Finance companies play an important role in financing growing small, underfunded companies. 融�公司在融�中� �着重要作用，受到�助的公司。 • Commercial finance companies originated the concept of leveraged buyout (LBOs) which relies heavily on debt to pay for buying a company商� 融�公司是杠杆收�（ LBO）的概念， �在很大程度上依�于��支付收�一 家公司 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -22

Securities Brokers and Dealers and Investment Banks • These financial institutions play a crucial role in the distribution and trading of large amounts of securities�些金融机构在大量� 券的�行和交易中扮演重要角色 • Investment banks – Sell and distribute new stocks (Primary Market) and bonds directly from issuing corporations to original purchasers �售和 �行新的股票（主要市�）和�券，直接 从�行公司到原始��者 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -23

Securities Brokers and Dealers and Investment Banks (Cont. ) • Investment banks (Cont. ) – Investment banks get a large amount of income from offering advice (information) to firms involved in mergers and acquisitions在兼并和收� • What price one firm should pay for another • Provide strategic advice in hostile takeovers在 �意收�提供�略建� —when one firm seeks to acquire another against the other’s wishes当 一家公司���得另一个反��方的愿望 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -24

Securities Brokers and Dealers and Investment Banks (Cont. ) • Brokers and Dealers经纪人和经销商 – Involved in the secondary market, trading exisiting securities现有的证券交易 – Brokers bring together buyers and sellers and earn a commission手续费 佣金, a fee. – Dealers commit their own capital in the buying and selling of securities and make profit on the transaction Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -25

Venture Capital Funds & Hedge Funds • Venture capital funds ��投�基金 and hedge funds 避险基金（套头资金）are usually not available to public investors • Funding comes from wealthy individuals or other financial institutions. • Venture capital funds provide an important source of funding to small and midsize companies小中型企业 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -26

Venture Capital Funds and Hedge Funds • Venture Capital Funds��投�基金 – Invest funds in START-UP COMPANIES 投�基 金在初�公司 – The Venture Capital Fund receives a substantial equity (ownership) in the firm��投�基金在公司 中�得��性股�（所有�） – Makes profits when it takes the successful company public in an initial public offering (IPO). 在首次公开募股（首次公开招股）�，将�得成功 的公司公众的利�。 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -27

Banks Versus Nondepository Institutions �行与非存款机构 • Many nondepository institutions offer services that compete directly with banks直接与�行�争 • Today Banks or Depository institutions compete with Nondepository institutions for the same business • The Gramm-Leach-Bliley Act of 1999 allowed the creation of FINANCIAL HOLDING COMPANIES (FHCs) that can own commercial banks, investment banks, and insurance underwriters 承销商 Chéngxiāo shāng 1999 Gramm-Leach-Bliley法案允��立金融 持股公司（金融控股公司），可以将自己的商��行， 投��行，保�承�商 Many people think this DEREGULATION caused the 2008 Financial Crisis. Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -28

DISCUSSION QUESTIONS 15. What do finance companies do? 16. What are investment banks good at? Next year you will study Investment Banking for a whole semester 17 Who do Venture Capital firms help the most? 18. What are Financial Holding Companies? 19. What did Gramm-Leach-Bliley allow to be created? And what is it responsible for? Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -29

CHAPTER 13 SUMMARY 1. Life Insurance Companies A. Two main types of Life Insurance i. Whole Life premiums paid for life, builds up a cash value. �身寿�的保 �，建立起�金价�。 ii. Term – covers a time i. e. 20 years B. Premiums and payouts based on actuarial tables. 基于精算表支付保�。 C. Buy long-term securities to fund policies ���期�券基金的政策 Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -30

CHAPTER 13 SUMMARY 2. Pension Funds (Retirement) A. 2 Types of Employer (Company) Plans 1. Defined Benefit 定�利益 – Employers define plan and pay into it. 2. Defined Contribution 定�的�献 – Employers and employees pay into it. Employees can choose what they want to invest in. B. 2 Types of Individual Plans 1. Keough 基奥– self employed 2. IRA – Individual Retirement Account Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -31

CHAPTER 13 SUMMARY 5. Finance Companies A. Consumer – Focus on personal loans and credit cards. B. Commercial – collateral based loans, less risky, short term, use of commercial paper. 6. Brokers, dealers, Investment Banks A. Sell new stocks in Primary Market B. Offer advice and information C. Advice in “hostile takeovers”. Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -32

CHAPTER 13 SUMMARY 3. Property & Casualty Insurance ��与 意外� To protect your home and property from loss such as fire, flood, etc. These companies invest in shorter term securities. Need liquidity as they don’t know when that may have to pay out. 4. Mutual Fund – pools the funds of many investors and offers diversified portfolio 多 元化投��合 of investment instuments. Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -33

CHAPTER 13 SUMMARY 7. Venture Capital and Hedge Funds��投�和 �冲基金 A. Funding for small to mid-size companies and for start-up companies B. Funds from wealthy individuals C. Return on money comes when a start-up company goes public as an IPO (initial public offering). 首次公开招股（首次公开�行）。 The Gramm-Leach Bliley Act of 1999 allowed banks to once again own these companies creating Financial Holding Companies Copyright © 2004 Pearson Addison-Wesley. All rights reserved. 13 -34