Financial Intermediaries Versus Direct Lending

When a borrower needs money he usually has two choices. He can either take a direct loan from a relative or in a seedier environment, a loan shark.
In some scenarios where the amount of money is small then this can be a workable loan. Otherwise the borrower will need to seek the capital from a financial intermediary such as a commercial bank or credit union. Financial intermediaries have three comparative advantages over direct lenders, not the least of which is capitalize on best forex trading. First of financial intermediaries can achieve economies of scale because of their specialization. Because they handle large numbers of transactions they are able to spread out their overhead through fixed costs. Second, financial intermediaries can reduce the transaction costs involved in searching for credit information. A consumer who wishes to lend directly can also search for information, but usually at a higher cost. Finally, financial intermediaries may be able to obtain important but sensitive information about a borrower's financial condition because they have a history of exercising discretion with this type of information. Furthermore, the intermediary may be able to reduce the problem of unreliable information because of its intimate knowledge of the borrower's operations, personal history and character.
It is for these reasons that are mentioned back financial intermediaries are often able to produce financial services at a lower cost than individual lenders. If they did not than individuals could manufacture their own financial services and us would transact in direct credit markets or act on forex trading tips. Financial intermediaries exist for that reason because of the high transaction costs involved in producing many financial services in small quantities. It is the small quantities of money with high overhead that make direct lending risky for a direct lender. That is why it is often recommended that a borrower seek a loan from their bank because a bank has a record of transactions to evaluate the risk of default upload applicant.