Page 465 - Business Principles and Management

Unit 5

but obtains funds to make loans by issuing securities. A finance company often
works with retailers selling expensive consumer products or vendors selling equip-
ment to business clients. The products are sold on credit and the finance company
approves and owns the credit account. Many finance companies such as CIT
Group and American General are independent companies specializing in financial
services. Some large manufacturers have a financial division that operates as a
finance company, such as Lexus Financial Services and John Deere Credit.

INSURANCE COMPANIES Insurance companies collect premiums on a variety of insur-
ance products and invest the premiums in securities, real estate, and other low- to
moderate-risk investments to earn money. In that role, they provide both business
and consumer loans. In addition to selling insurance, most insurance companies
offer a number of savings and investment products.

PENSION FUNDS Many companies offer their employees retirement benefits. Those
benefits are often invested in pension funds. Some pension funds are owned and
managed by the employer or by an employee union. However, most are managed
by an independent company or by a division of a larger financial services firm.
Both employer and employee make regular contributions to the pension fund
throughout the employee’s working career. Those contributions are invested by
the pension fund in stocks, bonds, real estate, and government securities. When
the employee retires, money is returned from the fund as a lump-sum payment or
as a regular series of payments over a period of years.

MUTUAL FUNDS A mutual fund is a company that pools the resources of a large num-
ber of investors and uses that money to make a variety of investments. Depending
on the type of mutual fund, the investments may be in stocks, bonds, government
Mutual funds carry varying securities, or other financial instruments. Some mutual funds focus their invest-
levels of risk. How can investors ments in particular industries or types of securities, whereas others look for a more
assess the level of risk they can balanced set of investments.
comfortably handle? Investors purchase shares in the mutual fund. The price of shares increases
or decreases based on the performance of the investments. Many mutual funds
charge a small administrative fee for their services. The number of
mutual funds and the value of their assets have grown dramatically
as people rely on the expertise of fund administrators to increase the
value of their investments.

SECURITIES AND INVESTMENT FIRMS Securities and investment firms provide
a variety of expert financial services for clients. Many serve as brokers,
buying and selling securities, stocks, and bonds for their clients. Another
service is underwriting new stock or bond issues. As an underwriter, the
company purchases new securities from a company and then resells
them to investors. It can also be a dealer, locating and purchasing secu-
rities with the intent of reselling them at a profit.
PHOTO: © GETTY IMAGES/PHOTODISC. FINANCIAL SERVICES COMPANIES Large companies that have been a part of

the financial services industry have seen the value of offering customers a
full range of financial products and services. They often buy companies
that offer specialized services such as credit cards, installment credit, or
insurance and combine them under the management of one corporation.
They serve both business clients and individual consumers with savings

452 and investment plans, loans and credit choices, fund management, and