Financial Intermediary

Financial Intermediary – A financial intermediary is an institution or agent that facilitates financial transactions between two parties, helping channel funds from savers to borrowers or investors. They play a crucial role in the financial system by reducing transaction costs, managing risk, and providing liquidity. Key Functions: Pooling and mobilizing funds from multiple investors. Providing a platform for buying and selling financial assets. Reducing risk through diversification and expertise. Ensuring efficient allocation of capital in the economy.

Examples of Financial Intermediaries: Banks: Collect deposits and provide loans. Brokerage Firms: Facilitate stock purchases and sales. Mutual Funds: Pool funds from investors and invest in diversified portfolios. Insurance Companies: Collect premiums and provide financial protection.

Example: When an individual purchases stocks through a brokerage firm, the brokerage acts as a financial intermediary, connecting the buyer with the market and facilitating the transaction