Understanding Financial Intermediaries
Financial intermediaries are middlemen in financial transactions, transferring funds from parties with excess capital to those in need of cash. Examples include banks, credit unions, and mutual funds.
Functioning of Financial Intermediaries
Non-bank financial intermediaries offer services like leasing and insurance, and usually have strategies for asset management. They help in creating efficient markets by transferring funds from those with excess capital to those who need it. Banks, for example, bridge the gap between borrowers and lenders, while insurance companies manage policy premiums and benefits.
Benefits of Financial Intermediaries
They help in spreading risk by lending to various borrowers, and reduce operating costs by lending to many borrowers. They also offer specialized financial products and services, thus catering to the varying needs of their clients.