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Financial Intermediation is institutions that accumulate surplus resources of economic agents and provide them in the form of various kinds of debt. Visit here: https://bit.ly/3estrrh
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Financial Intermediation is institutions that accumulate surplus resources of economic agents and provide them in the form of various kinds of debt obligations to entities that have a shortage of financial resources. Today, all operating financial Intermediation can be divided into three types, depending on the specifics of the operations performed: • Deposit and credit financial intermediaries include commercial banks, savings and loan associations, mutual savings banks, postal savings institutions, non-bank credit institutions, microfinance organizations, building societies, credit unions, and cooperatives. They manage the liquidity of their clients, organize money transfers, raise funds for deposits and provide a variety of loan products, minimizing transaction costs and risks.
• Insurance companies and pension funds belong to the contract-savings institutions. They raise funds in the form of contributions under contracts concluded between them and their clients. • Investment financial intermediaries assist clients in placing free funds in high-yield financial instruments. These include financial companies, mutual funds, hedge funds, general bank management funds (OFBMs), mortgage banks, and loan brokers. Also, a number of institutions operate on the financial market that provides services different from the above, but also contribute to the transformation of free cash into investments. These include professional participants in the securities market (brokers, dealers, depositories, trustees, etc.), factoring and forfeiting companies, leasing companies, stock, and currency exchanges.
The prevalence of this or that type of project consultancy in the national financial markets determines the specifics of the transactions carried out on them. Thus, the financial market of the USA, Canada, Japan is distinguished by the predominant development of the stock market and a high degree of investment attractiveness, while banking intermediation prevails in the financial markets of Germany, Switzerland, and China. The Russian Federation is also characterized by the predominant development of project consultancy of the deposit and credit type. Benefits of project consultancy for lenders • Financial intermediaries reduce credit risk (the risk of non-repayment of debt) by diversifying investments by types of financial instruments, by time, and between creditors.• Financial intermediaries are looking for reliable borrowers.
Benefits financial intermediation for borrowers • Financial intermediaries are looking for acceptable lenders.• A decrease in credit risk with the participation of financial intermediaries leads to a decrease in lending rates.• Financial intermediaries satisfy the demand of borrowers for large loans, having connections with many lenders.• Financial Intermediation can help turn short-term loans into long-term.
Financial intermediation differs significantly from broker-dealer activity. The peculiarity of the latter is that brokers and dealers do not create their own requirements and obligations, but act on the power of attorney of clients, receiving income in the form of a commission (brokers) or the difference in the rates of purchase and sale (dealers). Financial intermediaries operate in the market in a completely different way - on their own behalf and at their own expense, creating their own obligations and their own requirements. Therefore, their profit is formed as the difference between the income from the placement of accumulated funds and the costs associated with their attraction.
