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term loan to BCE. ? Primary route for moving funds from lenders to borrowers 17 The Financial System . Financial Institutions Financial Markets LenderSavers 1. Households 2. Business Firms 3. Governments 4. Foreigners 5. FIs Borrower –Spenders 1. Business Firms 2. Government 3. Households 4. Foreigners 5. FIs DIRECT FINANCE (Assisted by Securities firms) INDIRECT FINANCE Funds (., deposits) Funds (., loans) Funds Funds Funds (., Gov’t bonds) (., shares) (., shares) 18 Financial Intermediaries A) Depository Institutions. FIs that take deposits and make loans ? Chartered (mercial) banks and ? near banks (trust and mortgage loan panies, and credit unions) Main business. Take deposits (., demand deposits, short and long term deposits) that are used to provide loans (consumer, mercial, mortgage) 19 B: NonDepository Institutions ? Contractual Savings Institutions. FIs that acquire funds at periodic intervals on a contractual basis. ? Life Insurance panies. Life and health risk protection ? Pamp。C Insurance panies. Protection against theft, fire, accidents. ? Pension Funds. Provide retirement ine ? Investment Intermediaries ? Mutual Funds. Diversified portfolios of securities at a low cost. ? Finance Companies. Consumer and business loans (Do not take deposits) ? Securities Firms (Investment Dealers, BrokerDealers, Investment Banks)