Get premium membership and access questions with answers, video lessons as well as revision papers.
Financial intermediaries are financial institutions that accept money from savers and use these funds to make loans and other financial investments in their own names. Others include, saving institutions, insurance companies, pension funds, finance companies and mutual funds. Their role is to assist in the transfer of savings from savings surplus units to savings deficit units so that savings can be re-distributed into their most productive uses. These intermediaries come between ultimate borrowers and lenders by transforming direct claims into indirect claims. Financial intermediaries purchase direct (or primary) securities and, in turn, issue their own indirect (or secondary) securities to the public. For example, the direct security that a savings and loans association purchases is a mortgage, the indirect claim issued is a savings account or a deposit certificate.
The financial intermediaries performs many of the tasks that were initially perfumed by lenders and borrower- task of gathering funds, credit analysis, evaluation of risk, and handling of administrative and legal details. These takes involve real costs and the intermediary can perform them much more efficiently and much lower total cost than it can be done by an individual lender and borrower. In the jargon of an economist, financial intermediaries exhibit “economies of scale” with respect to costs of search, acquisition, analysis and diversification
By their actions, financial intermediaries provide a higher return to lenders for a given degree of risk and lower costs of borrowing than would be possible with direct finance. Higher savings rate encourage savings and lower borrowing costs permit greater investments. Savings and investments are equated more rapidly thus there is a faster economic growth.
Wilfykil answered the question on March 8, 2019 at 12:17
- Describe The Financial System(Solved)
Describe The Financial System
Date posted: March 8, 2019. Answers (1)
- In order to construct the IS – LM model for a simple economy, what assumptions will be held?(Solved)
In order to construct the IS – LM model for a simple economy, what assumptions will be held?
Date posted: March 8, 2019. Answers (1)
- Explain the Measurement of Money Supply(Solved)
Explain the Measurement of Money Supply
Date posted: March 8, 2019. Answers (1)
- What is the Monetarist view of the Quantity Theory of Money?(Solved)
What is the Monetarist view of the Quantity Theory of Money?
Date posted: March 8, 2019. Answers (1)
- What is the debate between Classical Theorists and Keynes on Demand for Money?(Solved)
What is the debate between Classical Theorists and Keynes on Demand for Money?
Date posted: March 8, 2019. Answers (1)
- Explain Keynes Money Demand Theory(Solved)
Explain Keynes Money Demand Theory
Date posted: March 8, 2019. Answers (1)
- Explain the Cambridge Equation Demand for Money(Solved)
Explain the Cambridge Equation Demand for Money
Date posted: March 8, 2019. Answers (1)
- Explain the quantity Demand Theory of Money(Solved)
Explain the quantity Demand Theory of Money
Date posted: March 8, 2019. Answers (1)
- What are the Advantages and Disadvantages of using paper money?(Solved)
What are the Advantages and Disadvantages of using paper money?
Date posted: March 8, 2019. Answers (1)
- Discuss on Paper Money(Solved)
Discuss on Paper Money
Date posted: March 8, 2019. Answers (1)
- Why did the gold standards fail?(Solved)
Why did the gold standards fail?
Date posted: March 8, 2019. Answers (1)
- Why is gold standard not an answer to payment mechanism?(Solved)
Why is gold standard not an answer to payment mechanism?
Date posted: March 8, 2019. Answers (1)
- Why favour gold standard as a basis of currency?(Solved)
Why favour gold standard as a basis of currency?
Date posted: March 8, 2019. Answers (1)
- Define the following terms:1. Gold currency standard 2. Gold exchange standard 3. Gold bullion standard 4. Gold parity standard(Solved)
Define the following terms:
1. Gold currency standard
2. Gold exchange standard
3. Gold bullion standard
4. Gold parity standard
Date posted: March 8, 2019. Answers (1)
- What does the Gresham’s Law state?(Solved)
What does the Gresham’s Law state?
Date posted: March 8, 2019. Answers (1)
- Elaborate on Monetary Standards(Solved)
Elaborate on Monetary Standards
Date posted: March 8, 2019. Answers (1)
- Describe the Types of Money(Solved)
Describe the Types of Money
Date posted: March 8, 2019. Answers (1)
- Explain the Origin of Banking(Solved)
Explain the Origin of Banking
Date posted: March 8, 2019. Answers (1)
- Discuss four criticism of Productivity Theory of Interest.(Solved)
Discuss four criticism of Productivity Theory of Interest.
Date posted: March 6, 2019. Answers (1)
- Describe the qualities of a Good Money Material.(Solved)
Describe the qualities of a Good Money Material.
Date posted: March 6, 2019. Answers (1)