A financial intermediary is an institution or individual that acts as an intermediary between various parties to facilitate financial transactions. Common types include commercial banks, investment banks, stockbrokers, combined investment funds, and the stock exchange. Financial intermediaries reallocate capital that is not invested into productive companies through various debt structures, equity, or hybrid ownership structures.
Through the process of financial intermediation, certain assets or liabilities are converted into different assets or liabilities. Thus, financial intermediaries channel funds from people who have surplus capital (savers) to those who need liquid funds to perform the desired activities (investors).
Financial intermediaries are usually institutions that facilitate the channeling of funds between lenders and borrowers indirectly. That is, savers (lenders) provide funds to intermediary institutions (such as banks), and the agency provides the funds to the perpetrators (borrowers). This may be in the form of a loan or a mortgage. Alternatively, they can lend money directly through financial markets, and eliminate financial intermediaries, known as financial disintermediation.
In the context of climate finance and development, financial intermediaries generally refer to private sector intermediaries, such as banks, private equity, venture capital funds, leasing companies, insurance and pension funds, and microcredit providers. Increasingly, international financial institutions provide funds through companies in the financial sector, rather than directly finance the project.
Video Financial intermediary
Functions performed by financial intermediaries
The financial intermediary hypothesis adopted by the mainstream economy offers the following three key functions:
- The creditor provides a credit line to eligible clients and collects premium debt instruments such as loans for home finance, education, cars, credit cards, small businesses, and personal needs.
- Changing short-term liabilities into long-term assets (banks dealing with large numbers of creditors and borrowers, and reconciling their conflicting needs)
- Transforming risks
- Changing risky investments into a risk-free risk. (lending to many borrowers to reduce risk)
- The ease of denomination
- Matching small deposits with large loans and large deposits with small loans
Maps Financial intermediary
Advantages and disadvantages of financial intermediaries
There are two important benefits of using financial intermediaries:
- Benefits of cost through direct loan/loan
- Protection of market failures; Conflicting needs of lenders and borrowers are reconciled, preventing market failures
cost advantages in using financial intermediaries include:
- Reconcile conflicting preferences from lenders and borrowers
- The intermediate risk aversion helps spread and reduce risk
- Economic scale - using financial intermediaries reduces lending and borrowing costs
- The scope-broker economy concentrates on the demands of lenders and borrowers and is able to improve their products and services (use the same inputs to produce different outputs)
Various losses have also been noted in the context of climate finance and development financial institutions. This includes a lack of transparency, inadequate attention to social and environmental issues, and the failure to connect directly with proven developmental impacts.
Type of financial intermediary
According to the dominant economic view of monetary operations, the following institutions are or may act as financial intermediaries:
- Bank
- Saving bank together
- Savings Bank
- Building a community
- Credit unions
- Financial advisor or broker
- Insurance company
- Collective investment scheme
- Pension Fund
- community cooperatives
- Stock market
In the view of alternative monetary and banking operations, the bank is not an intermediary, but the institution of "fundamentally creating money", while other institutions in the "intermediary" category should only be investment funds.
Summary
Financial intermediaries are intended to bring together economic agents with surplus funds that want to lend (invest) to those who lack the funds they want to borrow. In doing so, they offer the benefits of maturity and risk transformation. Specialist financial intermediaries seem to enjoy the associated (cost) benefits in offering financial services, which not only enable them to generate profits, but also improve overall economic efficiency. Their existence and services are explained by the "information problem" associated with financial markets.
See also
- Debt
- Financial economy
- Investment
- Save
- Financial market efficiency
References
Bibliography
- Pilbeam, Keith. Finance and Financial Markets. New York: PALGRAVE MACMILLAN, 2005.
- Valdez, Steven. Introduction to Global Financial Markets. Macmillan Press, 2007.
Source of the article : Wikipedia
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