Financial Intermediaries Business Firms

Financial intermediaries are middlemen that link two parties who are involved in financial dealings together. A financial intermediary does more than be a connector between borrowers and lenders. Financial intermediary performs assets and investment management services for clients. Additionally, he is responsible for rigidly following the rules put in place by regulatory bodies.

Meaning of financial intermediaries

Intermediaries assist two parties who want to sign a financial contract and negotiate the terms and conditions of the contract. Examples are banks and mutual funds firms. Furthermore, they give their clients several perks such as liquidity, safety, and so on. This helps them to properly manage clients’ assets and accounts.

Unfortunately, technological advancement is threatening the demand for intermediaries in sectors like the investment sector. But other fields like the insurance field are still thriving despite the use of modern technology. Therefore, intermediaries are still important for financial transactions to go through between two parties.

Examples of how they work

For bank intermediary

Banking hall A collects deposits from its clients and lends the fund to other clients. And it only lends funds to those who seek financial help. This makes Banking Hall A a financial intermediary.

The bank can link clients who need financial help to clients who have money to lend. Additionally, it can give funds acquired from the government and other financial organizations to borrowers too.

For non-bank intermediaries

Some non-bank intermediaries offer intermediary services in the finance industry. But such firms don’t collect deposits from customers. They rather offer insurance plans, leases, factoring services, and so on.

Examples of non-bank third-party

A non-bank will link its clients that want capital to clients who have the capital. This is done through the purchase of insurance, bonds, shares, and others.

Insurance

For insurance, they take policy compensations and give customers benefits for the policies they subscribed to. 

Pension

Pension intermediary companies act as fund collectors for their members and give the money collected to the members.

Mutual funds intermediaries

Mutual funds companies normally collect funds from investors and invest them into various enterprises that need the fund. The enterprises will get the funds they want. While the investors will have company shares and profits according to their investments. However, the intermediary firm has to seek the consent of the investors to know which industry and firm they prefer to invest in. Besides that, the firm will also consider the investors’ financial capabilities, the investment securities and so on.

Stock exchanges

This is a place where stock vendors and buyers meet to purchase and sell stocks. Stock exchange intermediary firms are also middlemen. They link investors that have excess money to entrepreneurs who require such investments. No matter how small the money is, the investor will have an opportunity to own a percentage of the company’s shares.

How do intermediary firms grow?

Lots of intermediaries develop and oversee their money by using long-term strategies and securities trades. There is one advantage of using intermediaries. You can use their operations and the country’s financial status to determine that country’s economic situation.

Intermediaries move money from one party that has surplus funds to another party that needs the money. Consequently, this lessens the expenses of operating an enterprise and improves market efficiency in the country.

Likewise, they safeguard clients’ money, so clients can be sure their deposits are safe. In addition, they increase the flow of capital to boost the economic situation of a nation, thereby improving the country’s development.

Functions of an intermediary

The functions of an intermediary differ from one firm to another, depending on the products and services they offer. These also affect their responsibilities and how they work. Since they’re essential in the expansion and development of a nation’s economy, their presence cannot be overemphasized. One of their roles is to connect clients who have deficit funds to others whose funds are surplus.

Others include:

• Connect people to different financial markets available.
• Protect customers’ money.
• Reduce business expenses by giving entrepreneurs economies of scale.
• Enhance a country’s economic growth.
• Obtain the necessary amount of debts and equities and ensure a balance between them.
• Facilitate capital structure optimization for business organizations.
• Do credit rating, offer financial knowledge, and act as financial consultants. They also give financial advice to clients.
• It is their responsibility to provide services like home loans, insurance, leasing, and investments to clients who want them.

Conclusion

In summary, financial intermediaries give finance quotes to clients who need financial information. These quotes will let them know what they are getting into before subscribing to their services. Furthermore, intermediaries look out for their client’s interests and never do something that will harm them. They are after easing their clients’ monetary burdens and solving their financial problems. Lastly, intermediaries help a nation’s economy and are there to inject funds into the economy.