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Essay example - Financial Intermediaries Paper

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Pages 2 (502 words)
The term financial intermediary may refer to an institution, firm or individual who performs intermediation between two or more parties in a financial context.[4] "Financial intermediaries may include banks, broker-dealers, investment advisers and financial planners"[3]…

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In doing so, the financial system not only satisfies savings needs of the economy but also facilitates the accumulation of investment capital that is critical to growth and development." (J. Carmichael & M. Pomerleano, 2002).[5]
The financial intermediaries are important in regulating and distributing the financial resources in the economy. The intermediaries in general and the banks in particular, help the Federal Reserve and the State Banks of economy to regulate and manage the financial transactions and controls in the economy.
In any economy, growth is directly affected by the accumulation of input factors of production and the technical knowledge that is used to convert inputs to outputs. In the input factors, financial and capital resources are of major importance. These financial and capital factors are directly related to the financial growth of industries and the economy.
"More specifically, financial development can affect growth through three main channels: (i) it can raise the proportion of savings channeled to investment, thereby reducing the costs of financial intermediation; (ii) it may improve the allocation of resources across investment projects, thus increasing the social marginal productivity of capital; and (iii) it can influence the savings rates of households ...
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