In a financial transaction, an individual body that functions as an intermediary in between two functional units is called a financial intermediary. The financial parties involved here might be a commercial bank, or an investment banks. Mutual funds and pension funds also come under this head. Financial intermediaries provide much assistance to the mediocre consumer.
The assistance mentioned here comprises of security, safety and also economies of money involved in banking. The topic needs to be studied with focus and care as they are essential for financial intermediaries homework answers.
The banking services mentioned here consists of commercial banking, investment and also resource management. With the advent of technology, it was seen that intermediary banking seizes to show its glory. But at the same time, disintermediation is also much less of a fear in other sections of finance, which also consists of banking and insurance as well. This means that there is also an existence of a non-bank intermediation.
Such entities do not receive deposits from the general public. It may give services such as insurance schemes, leasing and also other such services. For growing funds such intermediaries participate in securities interchange and also in long term plans.Â Economic status of a nation can be affected by such intermediary body and is also gauged in terms of its growth.
Functions of financial intermediaries are often asked in financial intermediaries homework answers. The main duty of the financial Intermediaries is to bring about transfer of fund from the ones who are in need of it to the ones who have it in excess. This very objective in its own brings about efficacy in the market and reduces the cost of trade.
Financial advisors link with the customers by means of purchase of assets like insurance bonds or real estates as well. Banks can form as a link between the parties who are in want of loan and the parties who are ready to offer funds. The parties that we are talking about here are essentially the financial bodies that also include the Federal Reserve System.
Similar is the case with insurance firms gathering money and after some time promising to provide return of the money invested. The case goes same for the pension funds as well. These happen to be the numerous instances that are the so called financial Intermediaries.
Functionalities of the Intermediaries body
Theoretically there are certain objectives intended to be performed by the financial Intermediaries as per the norms of the mainstream economics. Quite like the couples of examples stated above, credit givers provide a way to give verified customers to provide the instalments of liability instruments. It is noticed that banks make an arrangement for the money givers and the borrowers to meet and resolve their conflicts.
This is an instance of the case where the short term accountabilities are converted to long term resources. It has the task of risk alteration through its activities. One such case is where when the banks make use of its discretion to hand over loans to multiple borrowers. This is how a high risk problem is reduced to a low risk problem.
Corresponding minor credits with enormous credits and big deposits with minor loans is a task undertaken by this body. This implies that convenience denomination is a task that financial Intermediaries undertake.
On having the presence of a financial intermediary the cost advantage and market failure benefit are the two major gains. The cost advantage is enjoyed over direct lending or borrowing. And market failure can be neutralised by resolving the potential conflicts that might have crept in between the lender and the borrower. It is a section that needs vivid mention in your financial intermediaries homework answers.
The former benefit gained needs an elaboration. Unification of contradictory partialities of moneylenders and debtors remains as a main program of the financial intermediary. This also helps in reduction of market hazard.
Intermediaries focus on the burdens of the investors and debtors. So is capable of enhancing their services. This implies that with the same inputs it can provide different outcomes.
Financial intermediaries are expected to take along all the financial mediators with extra reserves. As already stated it connects those who are in need to offer rather investing to those who are in want of money, or are in a state of shortage.
By implementing their primary functions they eventually provide for advantages of maturity and also facilitate risk conversion. All these points need to be mentioned briefly in your financial intermediaries homework answers.
Expert financial intermediaries are supposedly relishing an associated advantage essential the cost advantage. It is attained in submission of monetary amenities, which not just permits them to create gain, but also increases the complete effectiveness of the economy. Their being and facilities are explicated by the information issues that are a part of the financial market.
Letâ€™s take up the case study of investment fund so as to strengthen our understanding. The terminology varies from nation to nation, but the role and objective of the fund remains the same. An investment fund is a technique of financing currency in conjunction with additional depositors.
This is done so as to value from the intrinsic benefits of being employed in a group. The main gains to investment fund comprises of the capability to appoint expert stock executives. This is done with a vision of hypothetically being able to bid healthier revenues and also to bring forth better passable risk management. It can be adopted as a case study while opting for financial intermediaries homework answers.
It also demands for the reduced cost of transaction and also to hike up the asset broadening. This is done so as to lessen certain haphazard risk. As per the recent look out of the financial and investment acts, banks are no longer being termed as Intermediaries. This is so as they are considered as money creators. And other bodies in the category are simply investment funds.