Enunciate the role of financial institutions with examples
Answers
A financial intermediary is a financial institution such as bank, building society, insurance company, investment bank or pension fund.
A financial intermediary offers a service to help an individual/ firm to save or borrow money. A financial intermediary helps to facilitate the different needs of lenders and borrowers.
For example, if you need to borrow £1,000 – you could try to find an individual who wants to lend £1,000. But, this would be very time consuming and you would find it difficult to know how reliable the lender was.
Therefore, rather than look for individuals to borrow a sum, it is more efficient to go to a bank (a financial intermediary) to borrow money. The bank raises funds from people looking to deposit money, and so can afford to lend out to those individuals who need it.