Financial system and interimediaries - Coursework Example

Financial institutions act as intermediaries and they determine the flow of funds. Financial regulators monitor the participants in the financial system. Conditions. Banks will always want to know how the borrower intends to use the loan. They will also check on whether the economic conditions will enable the customers make enough income to comfortably repay the loan (Wells Fargo, 2015). Financial intermediary is a financial institution that connects individuals with surplus finances with individual with deficit finances.

The individuals with excess finances are savers while those with deficit finances are borrowers. The savers give the money to a financial intermediary and the financial intermediary transfers the money to spenders through loans or mortgages. Examples of financial intermediaries include banks, private equity, venture capital funds, leasing companies, pension funds, insurance companies, financial advisers and brokers, collective investments schemes, building societies and micro-credit providers (Robert E.W et. al., 2012). A venture capital is a financial capital provider that provides financing to start-up businesses that have high chances to succeed.

The venture capital makes money by owning equity in the financed business. A building society is a financial institution that is owned by members as a common organization. Building society of most banking services such as saving and loans especially on mortgages. The profits generated by the building society are distributed among members depending on their share ownership of the building society. A collective investment scheme is a professional arrangement that enables investors to collectively pool funds and have these monies managed by professionals.

Collective investment schemes invest in a wide range of investment thus spreading their risks. They can invest in bonds and quoted equity, real estate and in transport and