Elaborate the following statements:  A.    Portfolio return is a linear combination of individual securities whereas portfolio risk is nonlinear. B.    Portfolio Management is primarily a risk diversification tool. C.    Financial Contracts are those which give simultaneous rise to the financial assets of one entity and financial liability or equity of another entity. D.    Investment decision refers to the selection and acquiring the resources whereas financing decision refers to the arrangement of funds to acquire selected resources.

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A: Answer

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Functions of Financial Institutions

Financial institutions are businesses that are formed to deal with financial and monetary transactions. These organizations primarily accept deposits, advance loans, make investments, and provide foreign exchange services. Financial institutions include, but are not limited to, banks, insurance companies, trust companies, brokerage firms, and investment bankers. Because financial institutions play such an important role in the economy in terms of monetary transactions, regulating their activities has become a requirement for governmental authorities. As a result, the government creates a multitude of laws and regulations to oversee the activities of financial institutions.