Major Financial Intermediaries
Major Financial Intermediaries: A third party that helps two parties conduct a financial transaction is known as a financial intermediary. Such a middleman or intermediary could be a company or an organisation. Financial intermediaries include entities like banks, insurance firms, pension funds, investment banks, and more.
Another way to put it is that the main goal of financial intermediaries is to direct funds toward investments. These middlemen receive payment for their services.
Major Financial intermediaries examples
Bank: These middlemen have permission to take deposits, make loans, and provide the general public with many other financial services. They are subject to stringent controls because they contribute significantly to the nation’s economic stability.
Mutual funds: They assist in combining individual investors’ savings to participate in the financial markets. A mutual fund is managed by a fund manager, who distributes the funds to various investment products.
Financial advisors: These intermediaries may or may not provide investors with advice to help them meet their financial goals. Typically, these advisors receive specialised training.
Credit Union: A sort of bank, the credit union serves its members rather than the general public. They might or might not run their business for profit.
Pension funds, insurance providers, investment banks, and others are examples of other financial intermediaries.
Major Financial Intermediaries’ Roles
An intermediary in finance carries out the following tasks:
- As previously stated, the primary role of these intermediaries is to transform savings into investments.
- Storage facilities for cash and other liquid assets, such as precious metals, are offered by intermediaries like commercial banks.
- One of the main jobs of financial intermediaries is to provide both short- and long-term loans. These intermediaries take deposits from organisations with extra cash and lend the money to organisations that require it. The loan is provided by intermediaries at interest; a portion is supplied to the depositors, while the remaining amount is kept as profit.
- Helping clients increase their financial security through investments is another important duty of these intermediaries. In order to help their clients optimise profits and minimise risks, intermediaries like mutual funds and investment banks offer investment solutions based on their experience.
Major Financial intermediaries’ benefits
- By distributing the risk among numerous borrowers, they assist in reducing the danger of one person having extra money. Additionally, they thoroughly screen the borrower, reducing the danger of default.
- They aid in time and money savings. These intermediaries benefit from economies of scale because they work with several clients.
- They can better tailor their services for each client because they provide a wide range of services. For instance, banks can tailor loans to meet the demands of small- and long-term borrowers. Similar to this, insurance firms provide age-specific coverage.
- They gather information and process it, which lessens the issue of asymmetric information.