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Financial institutions such as investment banks, investment companies, and brokerage firms that help firms place securities and help investors buy and sell them.
Securities firms include investment banks, investment companies, and brokerage firms. They serve as financial intermediaries in various ways. First, they play an investment banking role by placing securities (stocks and debt securities) issued by firms or government agencies. That is, they find investors who want to purchase these securities. Second, securities firms serve as investment companies by creating, marketing, and managing investment portfolios. A mutual fund is an example of an investment company. Finally, securities firms play a brokerage role by helping investors purchase securities or sell securities that they previously purchased.
Financial institutions that provide various types of insurance (life, property, health) for their customers.
Insurance companies provide various types of insurance for their customers, including life insurance, property and liability insurance, and health insurance. They periodically receive payments (premiums) from their policyholders, pool the payments, and invest the proceeds until these funds are needed to pay off claims of policyholders. They commonly use the funds to invest in debt securities issued by firms or by government agencies. They also invest heavily in stocks issued by firms. Thus they help finance corporate expansion.
Insurance companies employ portfolio managers who invest the funds that result from pooling the premiums of their customers. An insurance company may have one or more bond portfolio managers to determine which bonds to purchase, and one or more stock portfolio managers to determine which stocks to purchase. The objective of the portfolio managers is to earn a relatively high return on the portfolios for a given level of risk. In this way, the return on the investments not only should cover future insurance payments to policyholders but also should generate a sufficient profit, which provides a return to the owners of insurance companies. The performance of insurance companies depends on the performance of their bond and stock portfolios.
Like mutual funds, insurance companies tend to purchase securities in large blocks, and they typically have a large stake in several firms. Thus they closely monitor the performance of these firms. They may attempt to influence the management of a firm to improve the firm's performance and therefore enhance the performance of the securities in which they have invested.
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