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Role of Financial Institutions in Personal Decision-Making

You are the manager of the apparel division of On Your Mark, a manufacturer of athletic equipment and apparel, which has recently gone through the initial public offering (IPO) process and has become a public company. On Your Mark has annual sales revenue of approximately $50 million and makes seven unique and distinct products (which serve seven different markets). Each product is represented by its own division within the company and has its own group of sales, marketing, and manufacturing personnel. Some departments, including human resources and the finance division, support the entire organization. Operations consist of a single headquarters and production (manufacturing) center.

In your role as division manager, you are responsible for compiling and reporting on budget / forecast data, and for assessing and valuing new business opportunities (which will ultimately be presented to upper management). You report directly to the Plant Manager; however, you work closely with the Chief Financial Officer (CFO), and the accounting department's staff accountants assist you with your budget / forecast responsibilities.

You have been informed by the CFO that On Your Mark will be aggressively pursuing new business opportunities, which may include expansion through acquisition and the development and implementation of new products. As a publicly traded company, On Your Mark is scrutinized by bankers and investors as never before. In fulfilling your responsibilities you must keep this in mind, and you must instill a new sense of financial discipline in the organization.

Task Type: Discussion Board

What role(s) do financial institutions play in financial decision-making of individuals? Use personal examples to explain. How do financial institutions facilitate transactions between individuals, businesses, and governments? Why are these roles necessary? What role(s) do financial institutions play in financial matters for businesses? Are the roles the same or different than for individuals? Explain.

Why do we often refer to financial institutions as "intermediaries"? What does the term "intermediary" mean and how does it help describe the function of the institution?

Solution Preview

What role(s) do financial institutions play in financial decision-making of individuals?

-Financial institutions, as we know, exist primarily to hold and transfer money between individuals, governments, and businesses, and they do this in a variety of ways. The most immediate presence they have for an individual is via checking accounts and credit cards/loans/mortgages. When it comes to decisions on whether to buy a house, or a new car, often the interest rates offered by different institutions have a major impact on that decision. A consumer who may be able to get a car loan at 5% is in a much different situation than the person who can only get one at 20% due to their credit. These two people may both be able to afford the payments, but the 20% person may have to settle for a lower cost vehicle for their money or no vehicle at all. The same is true of mortgages.

How do financial institutions facilitate transactions ...

Solution Summary

The solution contains in-depth answers, with examples, in regards to each of the questions posted by the student.