Financial Intermediation
The perfect solution for those that has funds, come into funds, don't know how to use/invest funds or just want some advice on modern money markets practices.
Financial intermediation refers to the process where a third party acts as a bridge between different parties in financial & business transactions. Here are the key points:
- Role of Financial Intermediaries:
- Banks: They accept deposits from savers and lend funds to borrowers, linking those with surplus capital to those in need of funds.
- Mutual Funds: These provide active management of pooled capital from shareholders. Managers invest in assets they expect to outperform the market, benefiting both shareholders and companies.
- Insurance Companies: They collect premiums and provide policy benefits.
- Pension Funds: Collect funds on behalf of members and distribute payments to pensioners.
- Benefits:
- Pooling Risk: Intermediaries spread funds across diverse investments, reducing risk.
- Economies of Scale: Large investments are possible due to pooled funds.
- Efficient Markets: Intermediaries facilitate transactions, lowering costs.
In summary: Financial intermediaries play a crucial role in connecting savers, borrowers, and investors, contributing to a well-functioning financial system.