Question

answer in 400 words.
Why do most people use the services of Intermediaries as opposed to direct finance?

Answer 1

Finance Intermediary

It is a person/firm/company or organization which is developed to offer financial services to help an individual or any company. It helps both for lending as well borrowing. It acts as a middle support.

Examples of Financial Intermediary

Commercial Banks; Mutual Fund companies; Investment Banks etc.

Some functions done by Financial Intermediaries

1. Issue of shares/bonds

2. Liquidation of company

3. Buying/selling shares/bonds

4. Asset management

5. Providing individuals the help to save money by different accounts like Recceuring Deposit/Saving Accounts

6. Leasing

7. Factoring

8. Insurance services

9. Debt Securitization

The Process of an Intermediary

Let's take the example of a bank which collects funds from common people in the form of deposit and invests the same with other institutions (like Government Projects) or can even lend to federal reserve to generate interest and to repay interest to people who have invested in the bank. Here bank acts as an intermediary.

The Reason People choose Services of Intermediaries:

1. Lack of Knowledge: Many people don't have the adequate knowledge about investing so they seek the help of intermediaries who are professional at doing financial activities.

2. To Avoid Risk: People don't want to take risk against their savings so they seek the help of intermediaries.

3. To secure Income: Some individuals seek professional help to maintain a fixed amount of income so they seek intermediaries.

4. To get wide range of services at one place: Intermediaries offer wide range of services under a shed so individual need not to run here and there for professional help.

5. Lack of Time: Today's era is full of money but short of time. People don't have time to undergo thoroughly for financial tools and to analyze pros and cons of their investment plans so they seek professional help.

6. Government's Regulations: Sometimes the regulations made by the governments necessitates the intermediation of such institutions that individuals have to seek their help.

Conclusion

Financial intermediaries are the professional organizations/people which have wide variety of services available under one shed with latest amendments and updates. So these features attracts individuals to seek their help.