Financial Institutions in Turkey

    Дисциплина: Бухучёт, статистика
    Тип работы: Реферат
    Тема: Financial Institutions in Turkey











    ANKARA 2006

    Financial Institutions in Turkey

    Financial institutions are the parts of the financial system. The financial system is the complex structure, and every year it channels billions of dollars, euros, yens, Turkish

    liras from savers to people with productive investment opportunities. Financial institutions commonly separated as depository institutions and as non-bank institutions.

    Our major target in this paper is to have a wide look at financial institutions in Turkey. For easy

    work and best understanding it makes sense to follow mere wisdom “think globally- do locally”. So, in order to make a proper outline, I plan firstly work on general financial

    institutions all over the world, and then look whether they exists in Turkey, their structure and how they work.

    Non-bank Financial Institutions

    Although depository institutions, or by other words banks are the financial institutions we deal with most often, they are not the only financial institutions we come in contact

    with. In such transactions like purchasing insurance from insurance company, or buying a share of common stock with the help of the broker, we are dealing with non-bank financial


    The role of non-bank financial institutions is to transfer funds from lenders-savers to

    borrowers-spenders. In the time of technological progress, non-bank financial institutions innovate new services, and now compete more directly with banks by providing banklike

    services to their customers.

    Insurance Companies

    Every day we face the possibility of the occurrence of certain catastrophic events that could lead to large financial losses. Because these losses could be large relative to our

    financial resources, people found the solution by buying insurance coverage that will compensate the sum of money if catastrophic events occur.

    Life Insurance Companies

    The first life insurance company in the United States (Presbyterian Ministers’ Fund in Philadelphia) was established in 1759, in Turkey it was established in 1893 by


    Sigorta, a member of

    Osmanli Bank. In 1918 was created


    Milli – the first insurance company created by Turkish laws. This huge difference in time was because insurance in Ottoman Empire was accepted as gambling, and

    correspondingly was forbidden. But after two great fires in

    Beyoglu and

    Kumkapi (

    Stanbul) in 1870 the laws were rearranged, and gave permission for foreign insurance companies to service in Ottoman Empire.

    Life insurance company sells policies that provide income if a person dies and incapacitated by illness, or retire. Such companies are organized in two forms: as stock companies

    or as mutual companies. Stock companies are owned by stockholders; mutuals are technically owned by policyholders.

    Because death rates for population as whole are predictable with a high degree of certainty, life insurance companies can accurately predict what their payouts to policyholders

    will be in the future. Consequently, they hold long-term assets that are not particularly liquid – corporate bonds and commercial mortgages as well as some corporate stocks.

    There are two principal forms of life insurance policies: permanent life insurance (such as whole, universal, and variable life) and temporary insurance (such as term).

    Permanent life insurances policies have a constant premium throughout the life of the policy. In the early years of the policy the size of the premium exceeds the amount needed to

    ensure against death because the probability of death is low. Thus the policy builds up a cash value in its early years. But in later years the cash value declines because the

    constant premiums falls below the amount needed to ensure against death, the probability of which is now higher. Term insurance, by contrast, has premiums that are matched every year

    to the amount needed to ensure against death during the period of the term (for example one or five years). Hence term policies have no cash value, thus, in contrast to permanent life

    policies, provide insurance only, with no savings aspects.

    Property And Casualty Insurance Companies

    Property and casualty insurance companies specialize in policies that pay fro losses incurred as a result of accidents, fire, or theft. Property and casualty insurance companies

    same as life insurance companies separated both as stock and mutual companies, and regulated by government. The investment policies of property and casualty insurance companies are

    affected by two basic facts. First, because they are subject to income taxes, the largest share of their assets is held in tax-exempt municipal bonds. Second, because property losses

    are more uncertain than the death rate in a population, these insurers are less able to predict how much they will have to pay policyholders than life insurance companies are. The

    earthquake in

    Izmit in 1999 exposed the property and casualty insurance companies to huge losses. Therefore, property and casualty insurance companies hold more liquid assets than life

    insurance companies. Property and casualty insurance companies will insure against losses from any type of events, including fire, theft, negligence, malpractice, earthquakes, and

    automobile accidents. If possible loss being insured is too large for any firm, several firms may join together to write a policy in order to share the risk. Insurance companies may

    also reduce their risk exposure by obtaining reinsurance. Reinsurance allocates a portion of the risk to another company in exchange for a portion of the premium and is particularly

    important for small insurance companies. The most famous risk-sharing operation is Lloyd’s of London, an association in which different insurance companies underwrite a fraction of an

    insurance policy. In Turkey the reinsurance activities also widely used, there is many companies that deal with other insurance companies by

    reinsurancing. As an example we could give Marsh Reinsurance that give reinsurance service and

    reinsure into the reinsurance companies abroad directly or through reinsurance brokers. There is also the Association of Insurance and Reinsurance Companies of

    Turkey located in Istanbul.

    Pension Funds

    in performing the financial intermediation function of asset transformation, pension funds provide the public with another kind of protection: income payments on


    There is an important increase in share of pension funds due to tax policy, because employer contribution to an employee pension plans are tax-deductive.

    Furthermore, tax policy has also encouraged employee contribution to pension funds by making them tax-deductible as well as enabling self-employed individuals to open up their own

    tax-sheltered pension plans, Keogh plans, and individuals retirement accounts (I...

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