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The Need For Financial Intermediaries

There are many benefits that occur both directly and indirectly due to the role that financial intermediaries play in a complex economic system such as that of the first world nations that make up best forex trading markets.          

There are many benefits that occur both directly and indirectly due to the role that financial intermediaries play in a complex economic system such as that of the first world nations that make up best forex trading markets.
Financial intermediaries are firms that operate to make a profit. They buy and sell specialized financial products. More specifically, they buy financial claims which are held as an asset of the intermediary like business loans, consumer installment loans, corporate bonds, corporate common stock and government bonds that are issued from borrowers i.e. governments. These financial claims have characteristics designed to meet the needs of a particular borrower. Financial intermediaries finance the purchase of these financial claims by selling financial claims on themselves which are held as liabilities of the intermediary like checking accounts, savings accounts, life insurance policies and mutual funds which are shared amongst investors. These financial claims have characteristics that are attractive to different investors.
To earn profits financial intermediaries by financial claims from borrowers whenever the income generated by the financial claim is expected to cover all their borrowing and production costs. In lending the money to a borrower there is a certain amount of overhead. What this means is that the borrower needs to pay back the principal plus even more money just for the lender to break even. Coupled with inflation such a loan may prove unwise if there is not enough interest charged to the borrower. That is why a financial intermediary is needed. They are able to make large amounts of loans as well as receive money from investors and act as a market maker between lenders and borrowers and give forex trading tips. A financial intermediary takes on a certain amount of risk but makes their money through transaction costs as well as the spread between the bid and ask price of loans. Without a financial intermediary and the ability for money to transfer from one party to another in the form of a loan would greatly be inhibited.

Article Tags: These Financial Claims, Financial Intermediaries, Financial Claims, These Financial, Financial Intermediary

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ABOUT THE AUTHOR


Rhab Hendrik is an author who shares his best forex trading articles with others. He can always be counted on to bring you the latest forex trading tips and detailed forex trading strategies.



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