Solved Question: Describe the role that financial intermediaries play

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Describe the role that financial intermediaries play in the financial markets and explain why there are so many different types of intermediaries


Financial intermediaries bring sources of funds to user who would like to avail the funds. They play a very important role in bringing the idle sitting funds to the people requiring it and thus increasing efficiency and contributing to the economic growth. In other words they facilitate the differing needs of lenders and borrowers. They help in a way that borrowers rather than going to individual lenders go to a financial intermediaries in order to acquire funds needed. Since they specialize in this, they offer competitive rates and take care of repaying abilities of the borrowers. They provide a low search cost and spread risk between different borrowers. They also thus provide economies of scale and convenience of amounts to a large extent.

There are various types of financial intermediaries, Banks, insurance companies, Financial advisors, Credit union, Investment trusts etc. They are present to cater to different fund needs. For example a firm if requires loan will go to a bank however an individual requiring insurance will go to an insurance company because his requirement of funds is different. Each type of intermediary caters to differing needs.


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