Chapter 4, Problem 15AA

To determine

Types of lending institutions in the American economy.

Explanation of Solution

Type of institutions	Descriptions
Commercial Banks	Commercial banks accepts deposits and advance loans to individuals. They also transfer funds among businesses, individuals, and banks. Examples of commercial bank are HSBC Bank, Bank of America and Citigroup etc.
Savings and Loan Associations	Savings and loan associations are also like commercial banks, accepts deposits and lend money. They make mortgage loans to families and businesses. They also finance auto loans. Their interest are slightly less than commercial banks. Their share of lending to businesses is less than 20% of total lending.
Savings Banks	These banks were initially set up to advance loans to small savers who were not able to get loans from other sources. Most savings banks lends funds for home mortgage, vehicle loans, and personal loans. Now they serves as commercial banks and accepts deposits and lends fund.
Credit Unions	Credit unions are special kind of institutions that only serves its members. They are owned and operated by its members for their benefits. They charge low-interest rates.
Finance Company	Finance company signs contracts for installment debts from stores and charge fee for collecting their debts. Whereas consumer finance company makes loan directly to consumers at relatively high rate of interest. This option is utilized by those who are usually unable to borrow from other sources.

Economics Concept Introduction

Introduction:

Lending or financial institutions are those institutions that borrow funds at one interest rate and lend those funds at a higher rate to gain profit. Some examples of lending institutions are commercial banks, savings and loan associations, savings bank etc.