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    Financial Intermediaries and Their Functions

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    Brandon Lumibao
    Financial intermediaries facilitate the efficient allocation of funds between lenders/investors and borrowers when direct dealings are difficult. They obtain funds from lenders/investors and lend or invest those funds to borrowers, creating more favorable transaction terms. Financial intermediaries transform less desirable financial assets into their own liabilities that are more preferred by the public, providing maturity intermediation, risk reduction through diversification, and lower contracting and information processing costs.

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    Financial Intermediaries and Their Functions

    Uploaded by

    Brandon Lumibao
    87 views2 pages
    Financial intermediaries facilitate the efficient allocation of funds between lenders/investors and borrowers when direct dealings are difficult. They obtain funds from lenders/investors and lend or invest those funds to borrowers, creating more favorable transaction terms. Financial intermediaries transform less desirable financial assets into their own liabilities that are more preferred by the public, providing maturity intermediation, risk reduction through diversification, and lower contracting and information processing costs.

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    financial intermediaries and their functions

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    Financial intermediaries facilitate the efficient allocation of funds between lenders/investors and borrowers when direct dealings are difficult. They obtain funds from lenders/investors and lend or invest those funds to borrowers, creating more favorable transaction terms. Financial intermediaries transform less desirable financial assets into their own liabilities that are more preferred by the public, providing maturity intermediation, risk reduction through diversification, and lower contracting and information processing costs.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    87 views2 pages

    Financial Intermediaries and Their Functions

    Uploaded by

    Brandon Lumibao
    Financial intermediaries facilitate the efficient allocation of funds between lenders/investors and borrowers when direct dealings are difficult. They obtain funds from lenders/investors and lend or invest those funds to borrowers, creating more favorable transaction terms. Financial intermediaries transform less desirable financial assets into their own liabilities that are more preferred by the public, providing maturity intermediation, risk reduction through diversification, and lower contracting and information processing costs.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    1.3.

    Financial intermediaries and their functions


    Financial intermediary is a special financial entity, which performs the
    role of efficient allocation of funds, when there are conditions that
    make it difficult for lenders or investors of funds to deal directly with
    borrowers of funds in financial markets. Financial intermediaries
    include depository institutions, insurance companies, regulated
    investment companies, investment banks, pension funds.
    The role of financial intermediaries is to create more favourable
    transaction terms than could be realized by lenders/investors and
    borrowers dealing directly with each other in the financial market.
    The financial intermediaries are engaged in:

    10
     obtaining funds from lenders or investors and  lending or investing
    the funds that they borrow to those who need funds.
    The funds that a financial intermediary acquires become, depending on
    the financial claim, either the liability of the financial intermediary or
    equity participants of the financial intermediary. The funds that a
    financial intermediary lends or invests become the asset of the financial
    intermediary.
    Financial intermediaries are engaged in transformation of financial
    assets, which are less desirable for a large part of the investing public
    into other financial assets—their own liabilities—which are more widely
    preferred by the public.
    Asset transformation provides at least one of three economic functions:
     Maturity intermediation.  Risk reduction via diversification.  Cost
    reduction for contracting and information processing.

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