Question

Illustrate how do financial institutions such as commercial bank alleviate the problem of liquidity risk faced by investors who wish to invest in the securities of corporations?

Answer 1

Financial institutions like commercial bank lowers the risk of liquidity which are being faced by investors who want to invest into the securities of cooperation as these financial institution will be providing these investors with adequate credit facilities and they will also offering them with higher Liquidity and these Financial institutions are generally trading in the securities and they are also offering with a better entry and better exit for these investors as per their needs,so they are offering a very high amount of Liquidity in the market by facilitating higher credit availability and higher liquidity.

Financial institutions like commercial banks are providing the investors with transfer of funds from savings accounts to the brokerage accounts in a quick amount of time so it is offering them with a adequate opportunity of investment into security as and when they want, so it will be reducing the time also and it will also offer them with the adequate loan in order to invest to the securities and these commercial banks are also providing them with an opportunity to withdraw the money from these brokerage accounts and they will directly invest into the savings account so there is a very high flow of Liquidity in the entire system due to existence of The Financial institutions and commercial bank and these institutions are helping the investors in better price discovery also and better participation in the market because they will be offering with higher credit availability and better transparency along with liquidity, so this will be leading to a lower liquidity problem for the investor because cash are available for them at any period of time as they want the easy entry and easy exit so they can invest according to their need as per their availability of the funds and credit so it can be said that the Financial institutions like commercial banks are helping investors to a large extent by eliminating liquidity risk to certain extent for investment into various shares of the corporates.