Introduction Financial institutions have played a significant role in integrating the different economics of the world. A brief analysis of the global economic scenario can highlight the fact that the financial industry has always been that sector which has either strengthen or uplifted the economic outlook of a particular region, or has caused turmoil…
An understanding of Financial Institution A financial intermediary can be defined as an institution that acts as the middleman between investors and firms raising funds. (Investopedia, 2012) Several types of financial intermediaries such as Banks, Insurance companies, building societies, pension funds, credit unions etc functions in an economy. The function of a financial intermediary is of prime importance in economic growth as it brings in contact two parties i.e. one having a surplus of funds who is looking for a venture to invest in so to earn a return on the money, and the second type which is looking to borrow funds. Since in the real world, it is rare that the demand of lender and borrower reconcile and thus a financial intermediary comes into play. A financial intermediary, such as banks, acquires funds from the lenders and subsequently lends them to the borrowers according to their desire rates. In this particular exercise the financial intermediary takes into consideration various needs of the lender and borrower such as maturity (which means the duration or term for which the lender wants to lend and the borrower wants to acquire) and rate of return/cost of debt (the lender wants to maximize the return, whereas the borrower wants to minimize the cost). ...
In addition, the financial intermediary also offers risk aversion which assists the parties involved in spreading out and reducing the risk. Common Functions of Financial Institutions There are three main ways in which capital is transferred between savers and the one who needs it. In the first procedure, the saver directly receives stocks or bonds which a business sells. This transaction is done in the absence of any financial institution. The business in order to get the money it needs, provide savers with its securities. The second way is indirect way, which includes an investment banking house such as Merill Lynch, which underwrites the issue. Underwriter here plays the role of a middleman and guarantees the issuance of securities. The stocks or bonds of the company are sold to the investment bank, which in turn sells these same securities to the savers. In such transaction, the business’s securities and the savers money is only passing through the investment banking house. It should be noted that in this particular transaction that the investment bank buys the securities and held them for a particular period of time. By doing so the investment bank is taking a risk that it may not be able to resale these securities in the future for as much amount as it paid. This transaction is termed as a primary market transaction. The third way is an indirect way in which transfer is made through a financial intermediary such as bank or mutual fund. In this case, by exchanging its own security, the intermediary obtains funds from the saver. After acquiring the funds, the intermediary purchases businesses’ security with the money it obtained from the saver. For example, a bank ...
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“Financial Intermediaries Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.net/other/12511-financial-intermediaries.
The researcher states that the regulation of the financial global market is a problem as there are risks involved in the foreign currency. Some writers argue that most of the firms in the different parts of the world might be experiencing difficulties due to the trading activities rather than banking.
According to Allen and Gale (2000, chap 1), Financial intermediaries can be broadly classified into: deposit taking institutions such as banks, credit unions, savings and savings societies; Insurance schemes such as life insurance policies; investment ventures such as retirement benefits schemes and mutual funds.
This way, money flows from one hand to another via financial intermediaries. The article which is used to explain the whole structure of financial intermediaries is given in the references ( Kopcke, 2008)
There are many reasons for which these financial intermediaries are important for the local financial system.
The most fundamental contribution that any financial system makes is to channel resources from individuals and companies with surplus resources to those with resource deficits. 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.
Laws affect the ways in which business is conducted from region to region and country to country. Negotiations are never conducted exactly as they would be where you have pursued such actions in any city, in any state in whichever country from which you originate.
An SSU (normally the household sector) is one where income exceeds consumption, and a DFU, consisting normally of businesses and government, is one where current expenditure exceeds current income and external sources of funds must be found to make up for or supply the difference.
That foundation has come under fire as a result of financial crises that have come in more rapid intervals, and increased depth.
Based upon conditions and circumstances, individuals as well as companies borrow funds over the long term in capital markets (Scholtens and
They are non-banking and banking institutions which transfer funds to economic agents with a deficit unit from economic agents with surplus units. Two types of financial intermediaries exist namely bank financial intermediaries, like commercial banks and central bank, and non-bank financial intermediaries.
Insurance companies are companies that accept premiums in exchange for covers against risks. They mainly sell insurance services. They advise clients to invest in life assurance and general insurance that act
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