Question

Briefly state the role of financial intermediaries in an economy?

Answer 1

1. Functions of financial intermediaries in an economy
2. A financial intermediary is typically an institution that facilitates the channeling of funds between lenders and borrowers indirectly. That is, savers (lenders) give funds to an intermediary institution (such as a bank), and that institution gives those funds to spenders (borrowers).
3. Financial intermediaries are an important source of external funding for corporates. Unlike the capital markets where investors contract directly with the corporates creating marketable securities, financial intermediaries borrow from lenders or consumers and lend to the companies that need investment
4. Functions of Financial Intermediaries. Financial intermediaries move funds from parties with excess capital to parties needing funds. The process creates efficient markets and lowers the cost of conducting business. ... A pension fund collects funds on behalf of members and distributes payments to pensioners.

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