Financial intermediaries bring together borrowers and lenders in financial markets by interacting with savers and borrowers simultaneously and by producing a set of services facilitating the transformation of liabilities into assets like transforming deposits into loans. Though financial markets can also bring together lenders and borrowers directly, still the existence of financial intermediaries is of utmost importance. This is because the direct lending approach between savers and borrowers has proved inefficient as this process can be directly traced to the barter system where there is always a need for double coincidence of wants. This function of transformation is termed as intermediation. Through this process, financial intermediaries facilitate savers and borrowers to have indirect lending and borrowing. Financial intermediaries can be banks, building societies, financial advisor or broker, insurance companies, life insurance companies, mutual fund and pension fund. Firstly, national bank serves as a financial intermediary by accepting deposits and placing in various securities and mortgage loans. By doing this, individual investors are linked by banks with financial markets and demanders of credit. The intermediaries actually act as a middleman between firm raising funds and investors (Rampini & Viswanathan, 2012, pp.1-2). Requirement of financial intermediary Though financial markets can also bring together lenders and borrowers directly, still the existence of financial intermediaries is of utmost importance. This is because the direct lending approach between savers and borrowers has proved inefficient as this process can be directly traced to the barter system where there is always a need for double coincidence of wants. People with savings will want to lend the amount available with them for a particular time period. For this, one will have to find a person who needs approximately the same amount of fund for the same time period. Searching of such a person is a difficult task. Again, direct lending necessitates a negotiable contract. Transactions of repayments of principle and interest are required to account for. Direct lenders will have limited ability to diversify and minimum exposure to default risk by lending small amounts to many borrowers but the transaction costs would be relatively higher. Here financial intermediaries reduce the transaction costs and minimize risks. Thus, it improves the economic efficiency. Generally, the financial intermediaries perform the following functions: i. It facilitates transactions. ii. It creates a portfolio. iii. It spreads risks over time. iv. It eases household liquidity constraints. v. It reduces the problem of asymmetric information. In addition to intermediation, sometimes brokerage function also takes place by financial institutions in bringing together buyers and sellers to complete financial transactions. Stockbrokers specialize in brokerage to perform such task. Types of financial intermediaries Fee based or advisory financial intermediaries These financial intermediaries charge a fee for rendering advisory financial services. Their services include: i. Issue management ii. Underwriting iii. Portfolio management iv. Corporate counselling v. Stock broking vi. Credit syndication vii. Mergers and acquisitions viii. Debenture trusteeship ix. Capital restructuring Asset based financial intermediaries The specific requirements of customers are met by these financial intermediaries. They provide the required asset or finance for rent or interest respectively. The income is earned by them from
Financial intermediaries bring together borrowers and lenders in financial markets by interacting with savers and borrowers simultaneously and by producing a set of services facilitating the transformation of liabilities into assets like transforming deposits into loans. …
Banking is a typical case - one can just think about the 19 percent interest that he pays on credit cards and the 2 percent that he earns on his savings account. The undisclosed fact about banks’ profitability is their capability to measure risk, mostly in lending.
They often appear without any warnings. A financial crisis has often been deciphered as an era of sufferings that is critical enough to cause an immense change in most or all areas of this sector. The impact of financial crisis has been witnessed to affect the world economies to a large extent threatening their growth prospects (Allen & Gale, 2007).
However, the trend is in both directions. Whereas some banks have intensified their efforts to regain the foothold on the banking sector, some have done little. This is reflected by the number of people who have said that they love some banks in comparison to others.
In order to discuss the link between the financial system and the real economy, the paper will first discuss the structure and role of the financial system and then later the link between the two. The real economy consists of households, firms, and other agencies involved in the production of goods and services.
With the current shifts and twists in the global economy, it is increasingly important that factors that will continue to influence markets especially in the financial sector are closely watched. With globalisation taking a toll in the world’s economical dynamics, there are bound to be issues that will continue to emerge in the financial sector since it is one of the building blocks of national and international economies (Cebula, 2011).
Financial intermediaries in financial markets are of essence to both the borrowers and the lenders, and therefore, their role in financial markets cannot be underestimated (Besley and Brigham 2011). In this essay, I will discuss the importance of financial intermediaries in financial markets by identifying the roles these play in financial markets, including both the positive and negative ways.
The contemporary world due to the urge of applying cost effective and proper managerial strategies has resulted to varied intriguing issues evidenced with global corporations. Officials concerned with activities of different institutions always seek to maximize on their managerial trends, profits as well as allow for positive business feedback (Adler & Shper, 2010, pp.285).
Again, pricing is linked with profits and customer satisfaction. In most competitive and free markets, pricing is determined by the forces of demand and supply.
In the case of oligopolistic markets, where few major players dominate the business, they are in a position to dictate pricing terms, often to the detriment of smaller players who do not have the material resources or pricing strategies to match the big players.
The contemporary health issues in Ireland are diverse springing from one end to another. There are the ones that are related to in-house people and their problems. They maybe the nursing staff, the doctors, the consultants, and so on. The other part of the picture takes onto the canvas the outward population, that is to say, the Irish people in general who come to the health care centres like hospitals, clinics, nursing homes, and so on.