FINANCIAL MARKETS AND INSTITUTIONS

Assignment

Assignment

Financial Intermediaries

In most of the operations performed in the private market cannot act directly, but needs the intervention of so-called financial intermediaries, who are mediating the various operations performed by those involved in the stock markets. In order to be considered financial intermediaries need to be given two conditions: firstly, its function is to invest the funds of investors in the markets, but it is also necessary that this activity constitutes the main axis around which all activity, so they are always available to receive the funds that investors are placing on the market.

A financial intermediary is a financial institution, which indirectly raises money from subjects (lenders) with a capital surplus to provide subjects (borrowers) with capital needs. Households typically have a capital surplus and thus represent the bulk of deposits (savings deposit) financial intermediaries (mostly banks), while firms typically have capital requirements and thus as a borrower occur. Financial intermediaries are therefore demand-and-a mediator between capital supplies (Santomero, 1989, 1-14). Financial intermediaries stand between economic agents by adjusting the supply of capital at the request of shareholders, that is to say, by draining the financial capacities of certain agents (consisting of an unused savings) to lend or then put to other agents.

However, when it comes to mediation, it is issue more specifically the traditional business of banks that receive deposits on their behalf and lend money on their behalf. This distinguishes them from such activity stockbroker in whom the intermediary is a communication system between a buyer and a seller on an organized market. Thus we speak of disintermediation for financing transactions in which banks do not play a direct counterpart to individuals and businesses seeking capital or suppliers (Leyland & Pyle, 1977, 97-112).

The main function of financial intermediaries is to mediate between supply and demand of capital, by bringing together those who have surplus money, i.e. savers looking to invest and those who need that capital for investment, mainly companies (Fama, 1980, 39-58). It thus transforms what is known as financial liabilities (money saved) in financial assets (the money the company needs and is used to fund those projects for which capital needs).

One can distinguish between financial intermediaries in the narrower and wider sense. Financial intermediaries in the strict sense mean an institution that receives capital from investors and this passes on to the borrower. A bank accepts deposits and lends money. In the broader sense the financial intermediary can be any entity of individual who can affect and facilitate the trade between the lender san borrowers to permit and facilitate, or to transfer assets to the third party (Diamond, 1996, 51-66). These include financial brokerage, stock exchange services and rating agencies.

A method of classification, there are two types of financial intermediaries.

Bank financial intermediaries. Bank as a financial intermediary is considered as the one whose liabilities and obligations may be accepted as payments. They are the Central Bank, private banks, savings banks and credit unions (Allen & Gale, 2001, ...