Discuss at least four major macro benefits of having financial intermediaries in globalized financial markets.

Expert Solution

Financial Intermediaries are those who act as a middleman between various persons including individuals and organisations for the purpose of facilitating financial transactions. Following are the four major macro benefits of having financial intermediaries in globalised financial markets

Channelising Funds: Financial Intermediaries help in the channelisation of funds from persons having excess money(by way of accepting deposits) to persons who are in need of money (by way of providing loans)

Risk Transformation: They help in transforming risky assets into risk-free assets by granting small amount of loans to large number of borrowers.

Development of Economy: Financial Intermediaries like mutual funds, collective investment schemes and pension funds help in collecting money from large number of investors in small amount and investing them in financial markets thereby contributing to the growth of the economy.

Lower cost of Capital: Sometimes borrowings from financial intermediaries are cheaper than borrowing from external market and they provide access to large amount of capital.

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