Compare and Contrast the Structure: Insurance Industry vs Banking Industry

Solution Preview

1. What are Fed dollars and bank dollars? How do they differ? What are the different ways of making payment with each?
-Fed Dollars is a note issued by a bank representing its promise to pay a specific sum to the bearer on demand and acceptable as money, also called bank bill. Payments have to be made by the banks who issued the note
-Bank Dollars is a bank note issued by the Federal Reserve Banks and now serving as the prevailing paper currency in circulation in the US as a flat rate currency in the United States of. Payments can be made by anybody who borrowed the money
The difference is the issuer.

2. What is float? How does it affect the efficiency of the payments system? How does it affect the efficiency of the economy? How does it affect the profits of banks? What could be done to eliminate or to reduce it?
Float can mean
- The total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares.
or
- A float can also refer to a small portion of the money supply representing a balance that is simultaneously present in a buyers and a payers account. A float results from the delay occurring between the time that a check is written and the money actually being deducted from the writer's account. These balances are temporarily double counted as part of the overall money supply.
In other words, float is the time between receiving and disbursing cash.
The longer the delay takes, the less efficient the economy would be.
The sooner the bank gets the money, the more interest the bank should pay out. The later the bank gets the money, the less interest the bank needs to pay out.
To reduce it we can include the creation and electronic transmission of a custom host file for use in updating Accounts Receivable systems, and also electronically imaged copies of detailed payment documentation.

4. Compare and contrast the structure of the insurance industry with that of the banking industry. Discuss economies of scale and scope and how they are realized; integration, concentration, and competition; and regulation. Why do the structures of the two industries differ?

Economies of scale play an important role in many industries. If larger firms can produce cheaper than smaller rivals, then markets will be composed of a smaller number of large firms.
In insurance industry, economies of scale could be captured in claims processing, building compliance regimes, designing software systems, or negotiating provider networks. While larger employer ...