Financial intermediaries bridge the gap between savers and borrowers from "summary" of Financial Markets and Institutions, Global Edition by Frederic S. Mishkin,Stanley G. Eakins
Financial intermediaries play a crucial role in the economy by connecting those who have excess funds to those who need funds. The process of channeling funds from savers to borrowers is essential for economic growth and development. Savers deposit their money with financial intermediaries such as banks, mutual funds, and insurance companies. These intermediaries then use these funds to provide loans to individuals and businesses who need capital for various purposes. By doing so, financial intermediaries help to allocate resources efficiently in the economy. Financial intermediaries help to reduce the cost of borrowing for borrowers by pooling funds from many savers and lending them out at a higher interest rate. This allows borrowers to access funds at a lower cost than if they were to borrow directly from individual savers. Moreover, financial intermediaries provide a range of financial products and services that cater to the diverse needs of savers and borrowers. For example, they offer savings accounts, certificates of deposit, mortgages, and business loans. This enables individuals and businesses to manage their finances effectively and achieve their financial goals. In addition to facilitating the flow of funds between savers and borrowers, financial intermediaries also play a critical role in managing risk. They use various financial instruments and techniques to diversify and hedge against risks, thus ensuring the safety and stability of the financial system.- Financial intermediaries play a vital role in the economy by acting as intermediaries between savers and borrowers. Through their intermediation activities, they help to promote economic growth, allocate resources efficiently, reduce the cost of borrowing, and manage risk effectively.
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