Question

Provide a summary of the importance of financial companies, using the following issues:

1- The difference between financial and non-financial companies
2- The difference between banks and insurance companies (in terms of accounting and financing)
3- What do financial companies offer to the Palestinian economy?
4- By taking a sample, what is the composition of ownership in the banks and the insurance companies in Palestine?

Word Limit;

Upper word limit: 1,300 words for a whole assignment

Lower word limit: 800 words for a whole assignment

Answer 1

1. Financial and Non financial Companies Difference

1.financial institution accepts deposits and deals with customers directly while non financial institution does not accept deposits and deals with banks and govt

2. financial institution takes part in all activities concerning finance while non financial institution is concerned with loans needs of large enterprises.

3. financial institution deal with both internal and international customers while non financial institution concerned with finances of foreign companies.

2. Banks and Insurance companies difference

The failure of insurance companies are much different. The main difference is that while banks keep a small percentage of their deposits as reserves, an insurance company is required, by federal law, to keep at least 100% of their deposits as a minimum reserve with an industry average around 115%.

3. Due to the clearance crisis with Israel, the Palestinian economy was severely hit in terms of public finances, according to the World Bank’s report in 2019. World Bank Acting Country Director for West Bank Gaza Anna Bjerde said,The economy, which in 2018 saw no real growth, is now facing a severe fiscal shock because of the standoff over clearance revenue transfers." The report states, "Against a background of declining aid flows, the recent standoff stemmed from Israel’s unilateral deduction of US$138 million from the PA’s clearance revenues in 2019 to offset estimated payouts to Palestinian martyrs and prisoners’ families.

4. The results reveal that ownership concentration to be significantly negative related with performance of firms, while the insider ownership (executive management and directors of board) found to have significant positive relation with firm's performance . The results provided evidence for negative effect of ownership concentration which could be considered support for entrenchment hypothesis.