This website uses cookies to ensure you have the best experience. Learn more

Financial Intermediaries Paper Fin 324

840 words - 3 pages

In its broadest sense, the term "intermediary" includes any person who serves to bring other persons together. In the world of corporate finance, a financial intermediary is an institution that acts as a middleman between savers and borrowers. Specifically, these institutions accumulate money from investors and lend it to borrowers. A person with extra money could seek out borrowers alone and bypass intermediaries altogether (Schenk). By removing the middleman, the saver would most likely receive a higher return. So why then, do so many savers and borrowers use intermediaries? This paper will discuss the roles of financial intermediaries, as well as the two most important advantages of these institutions. A discussion of the importance of the most common financial intermediaries will also be included.Financial intermediaries provide two important advantages to depositors. The first advantage is that lending through an intermediary is usually less risky than lending directly. The intermediary has the ability to diversify. Financial intermediaries make a considerable number of loans, and while a percentage of them will be unsound, the losses are largely balanced by the profitable loans. Consequently, the average depositor could only directly make a handful of loans and any unsound loans would significantly affect his personal wealth. Intermediaries have the ability to put their "eggs" in many "baskets," thus ensuring minimal risk to its depositors (Schenk).The second important advantage financial intermediaries' offer is liquidity. Liquidity is the ability to quickly turn an asset into cash. Real estate property is considered an illiquid asset; selling a home can take a great deal of time. For example, if an individual loans money to another person, this loan can also be considered an illiquid asset. If the lender needs cash, collecting quickly on the loan may be very difficult. Even though an intermediary may make illiquid loans, its size allows it to make cash available to individual savers. Only when a large number of depositors want to withdraw money at the same time, is an intermediary unable to provide liquidity to its investors (Schenk). Thankfully, this is a rare occurrence by today's industry standards.Commercial banks are the largest and probably the most important financial institutions in the United States and in most other countries as well. In the U.S., the approximately 8,300 commercial banks have total assets that exceed $6 trillion. Commercial banks also offer the most services of any financial institution. These services include a wide range of checking and savings accounts, consumer loans, credit cards, home mortgage loans, business loans, and trust services (Boone, 692). Commercial banks raise funds by offering a diverse variety of checking and...

Find Another Essay On Financial Intermediaries Paper - FIN 324

Financial Services Functions And Roles Essay

1249 words - 5 pages financial system "is the totality of the financial transactions that take place and the financial instruments that they give rise to" (Mason 1976: xiv). It comprises a network of financial institutions and financial markets.Body:Financial institution (financial intermediaries): "All organisations that specialize in handling financial transactions whether as principals, agents or consultants" (Mason 1976: xiii). These institutions are divided down

Activity and Structure of Financial Intermediaries

2095 words - 8 pages There are various financial intermediaries within the financial industry. Some intermediaries largely offer depository or savings services while others offer services focusing on insurance and financial securities. Despite the differences in services offered, all of these intermediaries act as middlemen, bridging the gap between savers/lenders and borrowers (Adrian & Shin, 2011; Bodie, Kane, & Marcus, 2011). This paper will discuss the

Working Capital and Financial Environment Paper UPS VS. FedEx

1227 words - 5 pages FedEx and UPS are the two largest shipping companies in the world. From the early inception of each company, they have both had to face many obstacles. In today's world, the biggest challenge each faces is each other. This paper will examine elements of working capital for the most recent fiscal year, functions of intermediaries and financial regulatory bodies with the company, and the importance of control programs and effective internal

Role of the US Financial Systems

750 words - 3 pages As the Corporation size starts to expand a growing need to raise the short term and long term capital becomes one of the most basic of all business activities. In this paper we will discuss the role of U.S. financial markets, the role of investment bankers, and the sources of capital available to corporations. Corporations can raise capital through bank loans, private venture capitalist and when those resources are exhausted a corporation can


765 words - 4 pages Joseph Schumpeter argued in 1911 that the services provided by financial intermediaries--mobilizing savings, evaluating projects, managing risk, monitoring managers, and facilitating transactions--stimulate technological innovation and economic development. In this paper, King and Levine present evidence that supports this view through examining the cross-section data of about 80 countries during the period 1960-89. They find that various

Under MM theorem, is the role of bank will extinct?

2186 words - 9 pages model of resource allocation. According to this theory, financial institutions are exists because of the imperfection of the financial market." (Lin, Geng, and Whinston)Financial institutions are the intermediaries between the lenders and the borrowers. They benefit from access to information which can't be obtains easily by individuals. (Madura 2010, 23)That theory is similar to the theory by Diamond (1984), which stated that financial

The Three Most Important Things I Leaarned in This Course

1378 words - 6 pages the “acceptable” money. Money that is made of a valuable commodity, such as silver or gold, is called commodity money. As is typical of economies as they mature, the United States has moved away from commodity money to paper money. The money is backed not by the value of the commodity, but by a promise for payment. The flow of funds happen in the financial markets as mentioned above. This isn’t a place like a supermarket or mall where you

financial repression

717 words - 3 pages , and other restrictions other than that of the market that inhibits the financial intermediaries of an economy to maximize their output (Ito 2008 p. 430). The genesis of this theory was around the 1970s pioneered by two renowned economists Edward S. Shaw and Ronald I. McKinnon. With inference from this definition, I define financial repression as government activities and regulations put in place to reduce debt nevertheless been argued by many

Corporate Finance

1229 words - 5 pages As the Corporation size starts to expand a growing need to raise the short term and long term capital becomes one of the most basic of all business activities. In this paper we will discuss the role of U.S. financial markets, the role of investment bankers, and the sources of capital available to corporations. Corporations can raise capital through bank loans, private venture capitalist and when those resources are exhausted a corporation can

macroprudential policy

879 words - 4 pages stability of the financial system. In this paper I will focus on explaining in more detail what exactly macroprudential policy is. I will do this by giving an overview of its primary objectives, tools, issues regarding its implementation, interaction with other policies, and future topics that need to be further researched. The paper is based on the findings of renowned economists and respected authorities such as the International Monetary Fund

Just-In-Time Inventory

3185 words - 13 pages . Retrieved June 13, 2004 from C., Provencher M., & Yuen C., (2003) JIT Website retrieved on 14 June 2004 from of Phoenix. (Ed). (2003) Financial Accounting [University of Phoenix Custom Edition eResource]. The McGraw-Hill Companies. Retrieved April 23, 2004, from University of Phoenix, Resource, FIN/324--Financial Analysis for Managers II Web Site:

Similar Essays

Financial Intermediaries Paper

472 words - 2 pages Financial intermediaries have traditionally played a pivotal role in the growth of the economic sector. The creation of money as a means of exchange and a beneficial way for people to trade their assets, and more importantly to take advantage of the great monetary value attached to them has caused the appearance of specific institutions, markets and individuals that provide the appropriate environment to perform these activities.Financial

Us Fin 324 Internal Controls Paper

735 words - 3 pages control techniques are very closely related and internal control techniques help an organization stay within ethical guidelines. In 1985, COSO was formed to sponsor the National Commission on Fraudulent Financial Reporting. "COSO is a voluntary private sector organization dedicated to improving the quality of financial reporting through business ethics, effective internal controls and corporate governance", which all together help create a control

Working Capital And Financial Environment Essay

1143 words - 5 pages ). . According to Brealey, Marcus & Myers (2003), usually current assets exceed current liabilities that is, firms have positive net working capital.The Coca-Cola Company at the end of 2005 has a working capital of $414 million (Coca-Cola Company, 2006). When dealing with millions of dollars in a billion dollar company, it is vital to have an internal financial group monitoring all transactions of the money.With out intermediaries Coca Cola would not be

Financial Statement Analysis

1164 words - 5 pages perform, the effects of the Macy's merger, and provide a proposal of which company to invest in.ReferencesAlbrecht, S, Stice, J, Stice, E, & Swain, M. (2005). Accounting: Concepts and Applications.[Electronic version]. South-Western part of the Thomson Corporation. Chapter 5 p.4. TheNeed for Financial Statement Analysis. Retrieved March 19, 2008 from University ofPhoenix, rEsource, FIN 324 Course Website.