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Financial System and Intermediaries - Assignment Example

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A financial system also enables money lenders and borrowers to exchange funds. Financial intermediary on the other hand is an entity that acts as a facilitator…
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Financial System and Intermediaries
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Download file to see previous pages This role is performed by intermediaries by taking the advantage of economies of scale while markets do the same by facilitating offer and trade of assets that comprise investors’ portfolios (Gup, 2011, Pg. 11)
Financial intermediaries are the financial institutions such as banks, building societies, investment banks pension funds or insurance companies. Financial intermediaries include insurance companies that offer risk investment, financial advisers who offer specialist advice saving the investor costs and time in looking for the most suitable investment. Credit unions provide facilities for depositing and lending within a certain community and investment trusts or mutual funds that pool small savings of individual investors to enable a bigger investment trust. They enable small investors to enjoy smaller commission rates that are available on big purchases (Allen and Gale, 2001, Pg. 501).
Commercial banks are intermediaries that issue among others savings account deposits. With a 100 000, the investor can open a savings account that will earn interest annually. They carry interest payments and offer time deposits. In this case, interests are earned with fixed terms to maturity (Gup, 2011, Pg. 47).
Mutual funds raise funds through the sales of shares to individuals as well as institutions. The shares are pooled to buy a diversified portfolio of bonds, stocks or both. A mutual fund intermediary may keep some of the cash for other investment opportunities that may come up in the future (Gup, 2011, Pg. 82).
An investor may also require an adviser as a financial intermediary to help in making the right choice of institution to invest with. Advisers spare investors time and resources that may be spent in the process of looking for a suitable investment bank, firm or institution (Gup, 2011, Pg 87).
There are numerous banks in the UK that offer financial services to people all over the world. Barclays bank is ...Download file to see next pagesRead More
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