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Financial System and Intermediaries - Coursework Example

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In this country today, and all over the world, there exist a lot of financial intermediaries through which money can be saved or invested in order to earn an interest from it. The financial intermediaries channel funds from savers in the investing public to those who need loans to invest. …
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Financial System and Intermediaries
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As our example, a commercial bank will take my 100,000 as my savings and on-lend to a loan borrower who will pay interest and commission from the loan. The bank will pay me a portion of this interest as my deposit interest. Private equity funds are funds from investors intended to be invested in a private company over a specific time and agreed returns. Mutual funds are collected from many investors as a collective pool to be invested and venture capital have a similarity with either mutual funds or private only that they are invested in small and medium entities or start-ups with high potential for growth.
According to Harhoff and Lossen, 2007, Pension and provident funds are funds invested with an intention to earn the investor income after leaving employment and retirement. Modern day insurance firms do what has been explained above alongside traditional insurance coverage. Micro-credits provide micro-loans to small business people who might not afford big amounts of loans or have no security for loans. Members or a micro-loan working group often co-guarantee each other. All the financial intermediaries can take my 100,000 and trade with it in the ways just explained.
A financial intermediary can still act as an intermediary to another financial intermediary if it acts as a collecting agent to on-lend to another financial intermediary. A good example is a bank collecting savings from the public and going ahead to invest in a mutual fund with portfolio investments. ...Download file to see next pagesRead More
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