Financial Institution and Monetary Policy

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Financial Institutions
Financial institutions are either private or government owned organizations that operates as a channel between the borrowers and savers of funds. One of the main functions of financial institutions is to provide the financing that boosts the economic development of a nation. For instance, a stable financial system accommodates the flow of funds between investors and savers. However an instable financial system occurs when there's a disruption in this process causing a distortion in the real economy.

In this globalised era, there are various financial institutions due to the advancement in technology and discoveries. According to the RBA, there are three main types of financial system in Australia. They are; authorized deposit taking institutes (ADIs), non-authorized deposit taking institutes, insurers and fund managers. Where else, UK's main financial institutions are classified into deposit taking institutes (ADIs) and non-deposit taking institutions (NTDIs). Non-Deposit Taking Institutions (NDTI)

Non deposit taking institutions are financial intermediaries that are not permitted to accept deposits but they are enable to pool the payments of many people in forms like premiums or contributions and either invest it or provide credit to others. Examples of these NDTIs are fund management, insurance companies, investment banks, finance companies and retirement funds. Fund Management

Usually fund management institutions in Australia are commonly known as common funds, public unit trusts, hedge funds, cash management trusts and friendly societies. On the other hand, in the UK, fund management consists of asset managers and are usually consist of hedge funds, open-ended investment companies, unit trust and investment trust.

In general, fund managers receive funds from investors and these funds are invested in various asset securities on their behalf. The industry of fund management in Australia held assets worth A$1 855 510 million as at 30th June 2011 which compromises of life insurance offices, superannuation funds, public unit trusts, friendly societies, common funds and also cash management fund. Out of the total amount, 43% were used by fund managers in investments (Managed Funds, Australia 2013). On the other hand, the fund management sector in UK held a total assets of £3,010 billion at the end of 2011. This consists of insurance companies, pension funds and unit trusts (Office for National Statistics 2013).

On the contrary, friendly societies offers the same benefits to all its members for instance like the friendly societies in UK. However, the difference with Australia and UK is that Australia offers these benefits in a trust-form configuration, thus making them as a fund management (RBA 2012).

Insurance Companies
This sector covers both life and general insurance in both countries. An insurance policy is whereby, a contract with an insurance company in exchange for premiums (payments), the insurance company would provide payment, known as a death benefit, to beneficiaries in the event of the insured's death depending on the contract. In Australia the insurance industry compromises of 124 APRA authorized insurers (APRA 2012). Where else, the UK has 595 insurance companies that consist of 118 life insurers, 24 composite insurers and 453 general insurers (TheCityUK 2011). As at 30 June 2012, the insurance industry had a total of A$118.2 billion assets of which 2.7% representing the total financial sector (APRA 2012). On the other hand, UK life insurers had assets amounting to £122 billion and also a net asset worth £1597 billion for general insurers (ABI 2011). This signifies 0.7% and 10% of the total financial sector in UK. UK's insurance industry had outperformed Australia as it had been ranked the 3rd largest in the world and the biggest in Europe as at 2010. The industry had acquired 7% of the worldwide premium income (ABI 2012).

Retirement Funds
In Australia...
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